TDS and TCS on Purchases & Sales
PART A – TDS ON PURCHASE OF GOODS
- Old Section 194Q → Section 393(1), Table Sl. No. 8(ii) of the Income-tax Act, 2025
- Section Code: 1031
Applicability:
This provision is applicable to a buyer where both the following conditions are satisfied:
- Turnover condition of buyer: The total sales, gross receipts or turnover of the buyer from the business carried on by him must have exceeded ₹10 crore during the immediately preceding tax year.
- Purchase condition: The buyer purchases goods from a resident seller, and the aggregate value of purchase of goods from that seller exceeds ₹50 lakh during the current tax year.
Buyer turnover > ₹10 crore in immediately preceding year + Purchases from a resident seller > ₹50 lakh in current year = TDS applicable
The provision applies to purchases of both revenue goods and capital goods.
Rate of TDS :
Tax is to be deducted at source at the rate of 0.1% on an amount exceeding Rs 50 lakhs at the time of payment or credit whichever is earlier. Example – If Mr. X purchases goods worth Rs 60 lakhs during the year, he has to deduct TDS only on Rs 10 lakh at the rate of 0.1%.
In case where a seller fails to furnish a Permanent Account Number (PAN) to a buyer, the TDS would be deducted at the rate of 5% instead of 0.1%.
Some important elements are as under-
- The turnover limit of 10 crores and the threshold limit of 50 lakhs has to be computed by considering the amounts excluding GST.
- If the buyer makes an advance payment, then TDS should be deducted from the whole amount, including GST
- If the seller returns the money against purchase return then TDS can be adjusted later against any other purchase transaction.
- In case of replacement of goods no TDS adjustment can be made subsequently.
For the ease of deduction, the buyer has to give a declaration to the seller that his turnover in the immediately preceding year was greater than Rs.10 Cr and therefore he shall be deducting TDS on purchase transactions.
PART B – TCS
TCS – TAX COLLECTED AT SOURCE
TCS is a mechanism under which the seller/collector collects tax from the buyer at the time prescribed under the Act and deposits it with the Government.
The amount collected is reflected against the buyer’s PAN and can generally be claimed as tax credit in the buyer’s income-tax return.
TCS ON SPECIFIED GOODS
Although TCS on general sale of goods has been withdrawn, TCS continues for certain specified goods and transactions.
The major categories include:
- Alcoholic liquor for human consumption
- Tendu leaves
- Timber and specified forest produce
- Scrap
- Minerals such as coal, lignite and iron ore
- Certain leasing/licensing transactions
- Certain specified luxury goods
- Certain overseas remittances and overseas tour packages
| Nature of goods | TCS rate |
|---|---|
| Alcoholic liquor for human consumption | 1% |
| Tendu leaves | 5% |
| Timber | 2% |
| Other forest produce obtained under forest lease | 2% |
| Scrap | 1% |
| Coal / lignite / iron ore | 1% |
Imagine, TCS to be like an indirect tax like GST, but this is not an indirect tax, it is similar to TDS and can be claim back in Income Tax Return. However, the mechanism is similar to GST. For example:
If a factory sells scrap of Rs. 1 Crore to a scrap dealer. They need to collect TCS @1%, hence they would invoice the scrap dealer for 1 Crore + TCS @1% and collect Rs. 1 Crore and 1 Lakh. This 1 Lakh shall be deposited against the PAN of the scrap dealer, which can be claimed and adjusted in their IT returns.
If one observes carefully, the TCS provisions are applicable for only few specified goods like tendu leaves, scrap etc. which are unregulated and hence the responsibility of collecting tax has been reposed on large players i.e. the sellers rather than buyers, who are scattered.
QUICK REVISION – TDS ON PURCHASES
| Particulars | Details |
|---|---|
| Old Section | 194Q |
| New Section | 393(1), Table 8(ii) |
| Code | 1031 |
| Nature | Purchase of goods |
| Buyer turnover | > ₹10 crore in preceding tax year |
| Seller | Resident seller |
| Threshold | ₹50 lakh per seller |
| Rate | 0.1% |
| Basis | Amount exceeding ₹50 lakh |
| Time | Earlier of credit/payment |
| Capital goods | Covered |
| Revenue goods | Covered |
| Non-resident seller | Not covered by this specific provision |
| PAN not furnished | 5%, subject to applicable conditions |
| GST | Relevant GST exclusion where separately indicated |
QUICK REVISION – TCS
| Particulars | Current position |
|---|---|
| TCS provisions | Section 394 |
| General TCS on sale of goods – old 206C(1H) | Withdrawn from 1 April 2025 |
| Alcoholic liquor | TCS continues |
| Tendu leaves | TCS continues |
| Timber / specified forest produce | TCS continues |
| Scrap | TCS continues |
| Coal/lignite/iron ore | TCS continues |
| Certain luxury goods | TCS continues |
| LRS / overseas tour packages | TCS continues, subject to applicable rules |
| Manufacturing/processing etc. exemption | Form 127, where applicable |