Finance Act 2021 has introduced a new Section in TDS – Section 194Q TDS on Purchase of Goods, which will be coming into effect from 1st July 2021. This new Section is quite complicated and will definitely demand some extra efforts from Accountants and Professionals. Earlier since October 2020, a new provision of TCS was introduced and now a similar TDS provision is introduced to cover the uncovered part of the Dealings of Goods. Full Provision of TCS on Sale of Goods was explained in the last article in the very Summarised way, link of which is given at the end of Article. This Article will help you to have clarity over the upcoming Statutory Requirement and will help you understand when TCS is applicable and when TDS is applicable.
Provision – Section 194Q of Income-Tax Act
A person (Purchaser) will be liable to deduct TDS if-
1. His Turnover during last year exceeds Rs.10 crores. AND
2. Purchaser purchases of goods of Value exceeding Rs.50 Lakhs (Including GST) in the current year from a Seller (PAN-Wise). AND
3. Purchase is made from a Resident Supplier.
Rate of TDS:- 0.1% of Total Value of Transaction. If PAN of Seller is not provided to Buyer, TDS@5% is to be deducted.
Time Limit for deduction of TDS:- Earlier of payment or Credit to Account of Seller. Proviso to said section clarifies that even if the amount is credited to any account whether it be Suspense or any other, such credit shall be deemed to be Credited to Account of Seller and TDS shall apply accordingly.
Non-compliance of 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.
Cases when TDS is not deductible:-
1. If TDS is deductible under any other provision or
2. TCS is collectible under section 206C [excluding 206C(1H)]
(Memorandum to Finance Act, 2021 clarifies that in case of a where both TDS under this Section and TCS under Section 206C(1H) is applicable, then only TDS u/s 194Q shall be deductible.)
Illustration when TDS is Applicable & when TCS is Applicable:-
Scenario |
Buyer’s Turnover in Last Year |
Seller’s Turnover in Last Year |
Transaction during Year |
Section Applicable |
Person Liable |
Remark |
1 |
9 Cr |
9 Cr |
60 Lakhs |
Not Applicable |
– |
Both Buyer & Seller Turnover < 10 CR |
2 |
9 Cr |
11 Cr |
60 Lakhs |
TCS u/s 206C (1H) |
Seller |
Seller Turnover > 10 Cr & Buyer < 10 Cr – Transaction > 50 Lakhs |
3 |
11 Cr |
9 Cr |
60 Lakhs |
TDS u/s 194Q |
Buyer |
Buyer Turnover > 10 Cr – Transaction > 50 Lakhs |
4 |
11 Cr |
11 Cr |
60 Lakhs |
TDS u/s 194Q |
Buyer |
|
5 |
11 Cr |
11 Cr |
45 Lakhs |
Not Applicable |
– |
Transaction < 50 Lakhs |
Bare Act Provision for your ready Reference –
Sec 194Q – TDS on 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 Rs. 10 crores 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.
Author Bio
What will happen if the buyer is based on other than India? Buyer follows the TDS and other rules prevailing under the same country, not the rules of India and further, penalty of non compliance is 30% will be disallowed the expenditure which is also out of scope of prevailing rules of Buyer’s country’s rule. Hence in my opinion this provision will not applicable in case of buyer is Non Indian. Can anybody clarify the same thing.
Sir, CBDT issues Circular No.13 dated 30.06.2021, which clearly states that TDS u/s 194Q will not be applicable in the case of a Non-resident person except when it is connected with a permanent establishment.
I am Trader .. as many buyers n sellers are circulating declaration form amongst themselves to avoid ambiguity for applicability of either Section 206C(1H) or Section 194Q ..
Here My Firm is registered in PY 20-21 Thus TCS is not effective for us in PY 20-21 But TCS on us is applicable w.e.f 01.04.2021 along with E-invoicing Provision As Turnover Exceeds Thresold Limits in PY 20-21 .. …… ….. …
Now My question is whether we need to confirm about the provisions of Section 206AB and 206CCA of the Act as it is applicable or not in respect of our company’s financial transactions with seller as we are liable to filed income tax returns of last two previous years within the prescribed timelines as mentioned in the Act or the total tax collected and deducted appearing in our Form 26AS is less than Rs. 50,000 per annum during each of last two previous years. .. … ..
Here i want to know we need to declare for Return Filing n Tcs /tds less than 50000 in last two PY .. as we are newly registered firm n not filed returns in PYs n No Applicability of TCS /TDS in PYs..
Sir, in scenario 4(chart) you have mentioned both buyers and sellers turnover more than 10 cr and transaction more than 50 lacs and buyer will be deduct TDS u/s 194Q. But Sir if sellers turnover is more than 10cr then seller charged TCS u/s 206c. Please clarify which is applicable in this case. Thank you
In case TDS u/s 194Q (Buyers) and TCS u/s 206C(1H) (Seller) both are applicable, TDS u/s 194Q is required to be deducted by the Buyer.
Sir,
There is exception to sec 206C(1H) – If Buyer is Liable to and has deducted TDS under any Provision of Income Tax Act then TCS will not be applicable,
Hence if TDS u/s 194Q is applicable, then TCS will not be applicable
In this scenario, Both Buyer & Seller having turnover is more than 10 Crores then Buyer U/s 194Q is eligible TDS Deduct. Seller is not right collect TCS in invoice agains Law
why this new tax by govt why so complicated method why they unnecessary harresing buisness men this is very bad i dont support this
Sir, need your advice on this –
I am a trader. My turnover in the previous year is less than 10 cr.
I buy goods worth more than 50 lacs from a person whose turnover is more than 10 cr and i sell the same goods to a person whose turnover is again more than 10 cr. If both the sections 206C(1H) and 194Q are considered, both the persons (my seller and buyer) will be collecting / deducting tax from / to me ?
Can I claim exemption for the tax collection / deduction by any one person…… as I end up being deducted on both sides ?
Hard situation, waiting for any solution on this query.
My opinion you will end up by paying twice.
No sir, Till now there is no exception. But I dont think there willl be much impact, as your funds ( a small amount of 0.1%) will be blocked for 3 or lesser months.
While paying Advance Tax, you can adjust TDS/TCS deducted/collected against your tax liability and can pay only balance amount.
buyer turn over is less than 10cr.
sellers is in excess of 500 cr.
last year purchase is more than 50lakhs
will the buyer deduct tds unde sec.194q
No applicable if buyers turnover in FY 20-21 is less than Rs. 10 Crores
seller will be liable to deduct TCS U/S 206C(1H)
Sir, TDS will not be applicable in your case.
In your case, Seller will be liable to collect TCS if purchase in CURRENT year exceeds 50 Lakhs
Sir, Its applicable on service provider or not if turnover is Rs. 10 crore or above
applicable if that particular transaction is in goods exceesing 50 lakhs and not services
turnover exceeds 10 cr in fy 2019-20, TCS from 1.10.20 deducted & paid, however turnover in FYI 2020-21 below 10 cr. Pls advice whether TCS applicable from 1.4.21 or not
No… TCS is to be collected from Customer on the receipt in excess of Rs. 50 Lakhs if:-
1) Your Turnover in the Previous FY is more than Rs. 10 Crore.
2) That Customer has deposited more than Rs. 50 Lakhs in your Account in the Current Financial year.
As in your case… Turnover of previous year does not exceeds 10 Crore, TCS will not be applicable.
Before 1st JULY 21 whatever Debtor Outstanding balance is there Says 5crore What treatment should give
Sir, Department has not clarified anything about the same. But as per my reading, TDS u/s 194Q is to be deducted at earlier of Payment or invoice booking. Hence all invoice booked before 01.07.21 will not be liable to tax even if Payment is outstanding.
Dear Mr.Dhanesh, TDS u/s 194Q applicable on your purchases, nothing to do with debtors balance.
Sir, I think he mean to say… if balance of Debtor is outstanding on 30.06.2021, it means that we had submitted bill to customer before 30.06.2021 and he will not deduct TDS on that bill, Hence when he will pay us, we will be liable to collect TCS on such amount.
I hope I take Mr. Dhanesh’s comment in right way.
FROM WHICH MONTH’S PAYMENT TDS TO BE DEDUCT U/S 194Q