TOP 15 FAQs - TDS ON PURCHASE OF GOODS

1. The new section 194Q is effective from when?

It is effective from 1st July, 2021

2. What are the two main conditions for applicability of this section?

> Applicable on a buyer only if his total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out and

> Goods are purchased for a value or aggregate of value exceeding Rs. 50 lakhs in any previous year.

3. Who is responsible to deduct tax at source under this Section?

Buyer is responsible to deduct tax at source under this section.

4. What is the definition of buyer as per this section?

"Buyer" means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out.

5. What should be the value of goods purchased for the applicability of this section?

This section is applicable if aggregate value of goods exceed fifty lakh rupees in any previous year.

6. What is the time of deduction of TDS?

The time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier.

7. What is the rate at which TDS is required to be deducted?

TDS is required to be deducted at the rate of 0.1% of such sum exceeding fifty lakh rupees.

TDS = 0.1% of [Total Purchases from a seller - (Minus) ? 50 Lakhs]

However, if no PAN is provided by the seller, then the rate will be 5%.

8. How will the threshold limit be calculated?

The threshold limit of Rs.10 crore as well as Rs.50 Lakhs shall be computed annually on PAN basis and not GSTIN basis. In computing the total turnover, the amount of GST shall be included.

9. When are the provisions of this Section not applicable?

The provisions of this section shall not apply to a transaction on which—

(a) tax is deductible under any of the provisions of this Act; and

(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.

10. Are the provisions of this section applicable to capital goods as well?

This section is applicable on TDS on purchase of goods and goods can be capital goods as section doesn’t make any distinction between capital goods and trading goods.

Moreover, “Goods” as per CGST Act 2017 mean any kind of movable property other than services. Thus TDS u/s 194Q is applicable on purchase of capital goods.

11. Is TDS under this section required to be deducted on

• Advance payment ,
• Import transactions
• Purchase of immovable property?

On Advance payments - Yes

On Import transactions - No

On Purchase of immovable properties:

The definition of goods does not include immovable properties, thus provisions of Section 194Q are not applicable to such transactions. Moreover, if transaction value is more than INR 50 lakhs, provisions of Section 194IA would apply.

12. When is TDS under this section not required to be deducted?

Where TDS needs to be deducted under any other section then, TDS will not be deducted u/s 194Q and that other section will prevail.

13. If TCS is collected by the seller u/s 206C, is the same transaction liable to TDS under this section?

No

Example: Suppose X Ltd. purchased a motor vehicle for Rs. 70 Lac and TCS charged by the Dealer u/s 206C(1F), then no TDS shall be deducted u/s 194Q

14. Applicability of TCS by Seller u/s 206C(1H) TCS on Sale of Goods Vs. TDS by buyer u/s 194Q

Section 206C(1H) shall not apply if the buyer is liable to deduct TDS under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.

Section 194Q : shall not apply to a transaction on which––

(a) TDS under any of the provisions of this Act is deducted or

(b) TCS under the provisions of section 206C other than 206C(1H) applies.

So we can conclude that Section 194Q overrides Section 206C(1H), thus primary responsibility to deduct TDS is of buyer but if buyer fails to deduct TDS in this case will make Seller liable for TCS.

A practical difficulty may be seen that a seller who is liable to collect TCS u/s 206C(1H) will now have to confirm that whether the buyer is liable to deduct TDS u/s 194Q or not, and if he is so liable then whether the buyer actually deducted TDS or not.

Suppose in the above case the buyer though liable to deduct the TDS but not deducted, then, whether the seller will be deemed to be defaulter u/s 206C(1H) for the default made by the buyer. For this clarity is awaited. However, it is suggested to adapt a prudent view whenever there is any confusion with respect to applicability.

Example:

Section 206C(1H) shall not apply if the buyer is liable to deduct TDS under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.

Section 194Q : shall not apply to a transaction on which––

(a) TDS under any of the provisions of this Act is deducted or

(b) TCS under the provisions of section 206C other than 206C(1H) applies.

So we can conclude that Section 194Q overrides Section 206C(1H), thus primary responsibility to deduct TDS is of buyer but if buyer fails to deduct TDS in this case will make Seller liable for TCS.

A practical difficulty may be seen that a seller who is liable to collect TCS u/s 206C(1H) will now have to confirm that whether the buyer is liable to deduct TDS u/s 194Q or not, and if he is so liable then whether the buyer actually deducted TDS or not.

Suppose in the above case the buyer though liable to deduct the TDS but not deducted, then, whether the seller will be deemed to be defaulter u/s 206C(1H) for the default made by the buyer. For this clarity is awaited. However, it is suggested to adapt a prudent view whenever there is any confusion with respect to applicability.

 15. What is the impact of non-compliance of this section 194Q?

As per section 40a(ia) of Income Tax Act 1961, if the Buyer fails to deduct TDS, 30% of the expenditure will be disallowed.

Suggestion:

It is suggested to obtain a declaration from buyer at the time of sale stating that they would deduct and deposit TDS u/s 194Q. However, in case of any confusion it is suggested to adapt prudent view in implementing the provisions of these sections.

Bare Act:

Deduction of tax at source on payment of certain sum for purchase of goods.

194Q. (1) Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent of such sum exceeding fifty lakh rupees as income-tax.

Explanation.—For the purposes of this sub-section, "buyer" means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.

(2) Where any sum referred to in sub-section (1) is credited to any account, whether called "suspense account" or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

(3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.

(4) Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and the person liable to deduct tax.

(5) The provisions of this section shall not apply to a transaction on which—

(a) tax is deductible under any of the provisions of this Act; and

(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.]

Disclaimer: Update is meant for information purpose only and does not purport to be advice or opinion. It is prepared based on the understanding of the provisions as applicable as on date. The author is not responsible for any error or omission or for any action taken based on its contents.