READY REFERENCE GUIDE: TDS ON PURCHASE OF GOODS (SECTION 194Q)
Applicability:
-W.e.f. 1st July, 2021;
-On aggregate value of purchase exceeding Rs. 50 lakhs from a single seller in a F.Y.;
-To buyer whose turnover from business exceeds Rs. 10 Crs. during preceding F.Y. i.e. excluding GST; and
-Only on purchase of Goods.
Non-Applicability:
- TDS is deductible under any other provisions of Income Tax Act;
- TCS is collectible under any other provisions of Income Tax Act, other than under 206C(1H);
- Aggregate value of purchases does not exceeds Rs. 50 lakhs from a single supplier in a F.Y.;
- On purchase of services;
If supplier is non-resident, Central or State Government, Local Authority etc.; and To buyer whose turnover (excluding GST) from business does not exceeds Rs. 10 Crs. during preceding F.Y.
- Deduction
| Time | Rate |
| TDS shall be deductible at the time of credit or payment, whichever is earlier | 0.1% of the purchase value exceeding Rs. 50 lakhs for a F.Y. |
Other Provisions of Section 194Q:
1. TDS is to be deposited on or before 7th of next month (30th April only for TDS deducted during march)TDS shall also be deducted on advance payments made for purchase of goods.
2. TDS shall also be deducted on advance payments made for purchase of goods.
3. The seller does not have an option to approach the assessing officer to issue a certificate for a lower tax deduction or to file declaration for nil deduction in respect of transactions covered under section 194Q.
4. TDS Return to be filed on quarterly basis on or before 31st of the month following the respective quarter.
CLARIFICATIONS ISSUED VIDE CIRCULAR 13 OF 2021 DATED 30TH JUNE, 2021
Yesterday late evening, Circular No. 13 of 2021 dated 30th June, 2021 was issued by the CBDT to clarify various aspects and ambiguities relating to provisions of TDS on Purchase of Goods (Section 194Q), which have been made effective from today i.e. 1st July, 2021. Major points we have already covered above, however, few important clarifications provided in the circular are as under:
TCS on Sale of Goods V/s. TDS on Purchase of Goods:
| TCS u/s. 206C(1H) (TCS on Sale of Goods) | TDS u/s. 194Q (TDS on Purchase of Goods) payable on Payment or Credit, whichever is earlier | |
| TCS payable on receipt of consideration | Credit (issue of invoice) | Advance Payment |
| TCS applicable on full amount including GST | TDS applicable on amount excluding GST i.e. only on Taxable Value | TDS applicable on gross amount of payment including GST |
Threshold Provision:
Since the threshold of Rs. 50 lakhs is with respect to F.Y., calculation of sum for triggering TDS u/s. 194Q shall be computed from 1st April, 2021. Hence, if a person being buyer has already credited or paid Rs. 50 lakhs or more up to 30th June, 2021 to a seller, the TDS u/s. 194Q shall apply on all credit or payment during the F.Y., on or after 1st July, 2021 to such seller.
Transitional Provision:
| Transitional Provision | ||
| Invoice as well as Payment before 1st July | Invoice or Payment, anyone before 1st July | Invoice as well as Payment, both after 1st July |
| TDS Not Applicable | TDS Not Applicable | TDS Applicable |
Non-Resident Buyer:
Provisions of section 194Q of the Act shall not apply to a non-resident whose purchase of goods from seller resident in India and is not effectively connected with the permanent establishment of such non-resident in India.
Buyer / Seller having only Exempt Income:
Provisions of Section 194Q of the Act shall not apply on purchase of goods from a person, being a seller, who as a person is exempt from income tax under the Act (like person exempt under section 10) or under any other Act passed by the Parliament (Like RBI Act, ADB Act etc.). Similarly, with respect to TCS on Sale of Goods [Section 206C(1H)], it is clarified that the provisions of this sub-section shall not apply to sale of goods to a person, being a buyer, who as a person is exempt from income tax under the Act (like person exempt under section 10) or under any other Act passed by the Parliament (Like RBI Act, ADB Act etc.).
It is very important to note that the above clarifications would not apply if only part of the income of the person (being a seller or being a buyer, as the case may be) is exempt.
Transactions in Securities and Commodities:
Provisions of section 194Q of the Act shall not be applicable in relation to,-
transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation, including recognized stock exchanges or recognized clearing corporation located in International Financial Service Centre; and
transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with Regulation 21 of the
Temporary Relief:
If, for any reason, TCS has been collected by the seller before the buyer could deduct TDS on the same transaction, such transaction would not be subjected to TDS again by the buyer.
TDS V/s. TCS on Goods, where turnover of Buyer as well as Seller is greater than Rs. 10 Crs.
| For Purchases | ||
| 1st Invoice is issued and Payment is made later on | Advance Payment cases | |
| TCS is mentioned in Invoice | TCS is not mentioned in Invoice | Payment is initiated by the buyer and thus, TDS provisions are triggered first and TDS should be deducted from the amount of payment |
| No need to deduct TDS | TDS should be deducted | |
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| For Sales | ||
| 1st Invoice is issued and Payment is received later on | Advance Payment Cases | |
| Seller wishes to charge TCS | Seller does not intend to charge TCS | Payment is initiated by the buyer and thus, TDS provisions are triggered first. Let Buyer deduct TDS. |
| TCS to be charged in the invoice itself. No need to deduct TDS by the buyer | Do not mention TCS in invoice. Let Buyer deduct TDS. | |
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