TDS on Purchase of Goods [Section 194Q]

Bare Provision:

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.

Analysis:

1. Meaning of relevant terms:

(i)  “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.

(ii)  “seller” means a person who is resident.

 2. Applicability

These provision shall be applicable in the hands of Buyer of goods. 

3. When shall this provisions apply:

(i) The buyer has turnover exceeding Rs. 10 crores during the immediately preceding financial year.

(ii) Buyer has purchased goods from a resident seller and his PAN is available.

(iii) Buyer has purchased Goods (Input / Capital Goods).

(iv) Aggregate Value of Purchase from resident seller during the current financial year exceeds Rs. 50 lakhs.

(v) At the time of credit or payment, whichever is earlier.

4. Rate of TDS applicable:

(i) TDS @ 0.1% shall apply where PAN of seller is available [Section 194Q]

(ii) TDS @ 5% shall apply where PAN of seller is NOT available [Section 206AA]

5. When these provisions are NOT applicable:

(i) The buyer doesn’t have turnover exceeding Rs. 10 crores in preceding financial year.

(ii) The seller is a non-resident

(iii) Total purchases of the buyer does not exceed Rs. 50 lakhs during the current financial year.

(iv) TDS is already applicable under any other provisions of this Act.

6. TDS to be deducted on Taxable Value or Gross amount of Invoice which is including GST:

(i) Circular No. 17 dated 29-09-2020 has clarified to include GST on Goods for collecting TCS under Section 206C(1H). However, no such similar clarification has been received pertaining to TDS on Goods.

(ii) Hence, in absence of specific clarifications, it is advised to deduct TDS on Gross Invoice Amount including GST on amount exceeding Rs. 50 lakhs.

7. Implications If Buyer fails to Deduct TDS:

Where the buyer fails to deduct and deposit TDS, purchase expenditure to the extent of 30% will be disallowed u/s 40a(ia) of the ITA, 1961 and shall be subject to income tax at applicable tax rate.

8. Other Important Points:

(i) Where provisions of Section 194Q and Section 206C(1H) i.e. TCS on Goods are applicable, provisions of this Section 194Q shall prevail i.e. the buyer would deduct TDS u/s 194Q.

(ii) Currently, provisions for lower deduction of tax u/s 197 of the ITA, 1961 are not applicable.

Actionable Points:

1. Check if your turnover in preceding financial year exceeded Rs. 10 crores.

2. Identify your vendors from whom purchases has exceeded Rs. 50 lalkhs during the year.

3. Obtain PAN from such sellers.

4. Deduct TDS @ 0.1% at the time of credit or payment on amount exceeding Rs. 50 lakhs.