Section 206C (1H) has been abolished w.e.f. 1st April 2025

In recent years, the Income Tax Act has introduced several provisions to widen the scope of tax collection and improve compliance. Two such provisions are Section 194Q and Section 206C(1H). While both deal with transactions in goods, they operate differently—one applies to buyers and the other to sellers.

However, with effect from 1st April 2025, Section 206C(1H) has been abolished, leaving Section 194Q as the sole provision governing TDS on goods.

In this blog, we’ll cover:

• The meaning of Section 206C(1H) and 194Q
• Their applicability and conditions
• The differences between the two
• The latest update and what it means for businesses

Section 206C(1H) – TCS on Sale of Goods (Now Abolished)

• Introduced by: Finance Act, 2020
• Effective from: 1st October 2020
• Applicability: Seller of goods
• Threshold: Seller’s turnover in preceding financial year exceeds ₹10 crore
• Transaction Limit: TCS applies on receipts exceeding ₹50 lakh from a buyer in a year
• Rate: 0.1% (1% if PAN not provided)
• Time of Collection: At the time of receipt of sale consideration

👉 This section required sellers with large turnover to collect TCS from buyers once the sale receipts crossed the threshold.

👉This section has been abolished from 1^st April 2025.

Section 194Q – TDS on Purchase of Goods

• Introduced by: Finance Act, 2021
• Effective from: 1st July 2021
• Applicability: Buyer of goods
• Threshold: Buyer’s turnover in preceding financial year exceeds ₹10 crore
• Transaction Limit: TDS applies on purchases exceeding ₹50 lakh from a seller in a year
• Rate: 0.1% (5% if PAN not provided)
• Time of Deduction: At the time of credit or payment, whichever is earlier

👉 Essentially, if you are a large buyer making substantial purchases, you are required to deduct TDS under this section.

👉As per Circular No. 13/2021, if, for any reason, TCS has been collected by the seller u/s 206C(1H) of the Act, before the buyer could deduct TDS u/s 194Q of the Act on the same transaction, such transaction would not be subjected to TDS again by the buyer. This concession is provided to remove difficulty, since rate of tax deduction and collection are same in both these sections.

Section 194Q vs 206C(1H) | Key Differences

Important Update: Abolition of Section 206C(1H)

From 1st April 2025, Section 206C(1H) no longer applies. This means that only Section 194Q (TDS on goods) remains in force for such transactions.

This move reduces confusion between buyers and sellers over whether TDS or TCS applies, creating a more straightforward compliance framework.

Conclusion

Both Section 194Q and Section 206C(1H) were introduced to strengthen tax compliance on the trade of goods. While 194Q required buyers to deduct TDS, 206C(1H) required sellers to collect TCS. This dual responsibility created confusion in some cases.

The abolition of Section 206C(1H) from April 2025 simplifies matters—now, only Section 194Q applies, making compliance more efficient for businesses and ensuring clarity in high-value transactions.

FAQs on Section 194Q vs Section 206C(1H)

Q1. What is the main difference between Section 194Q and Section 206C(1H)?
194Q applied to buyers (TDS), while 206C(1H) applied to sellers (TCS).

Q2. What happens if both sections applied earlier?
Section 194Q had overriding effect, meaning buyers deducted TDS, and sellers were not required to collect TCS.

Q3. Is Section 206C(1H) still applicable?
No. It has been abolished from 1st April 2025.

Q4. Who is responsible now for compliance?
Buyers are responsible for deducting TDS under Section 194Q, subject to turnover and threshold conditions.