Analysis of Section 194Q- TDS on purchase of Goods

Introduction:

Finance act, 2021 has introduced a new section 194Q w.e.f. 01.07.2021 which requires a specified buyer to deduct TDS w.r.t. purchase of goods from a resident seller.

 Who is liable to Deduction TDS:

• The buyer is responsible to pay a sum or Rs. 50 lacs or more for purchase of goods shall be liable to deduct TDS at the time of purchase or payment whichever is earlier.

Note: Buyer means whose turnover exceeds Rs. 10 Cr. in previous financial year.

Deductee:

• The Resident seller of goods

Rate of TDS deduction

• If PAN Number is available: 0.1%
• If PAN Number is not available: 5%

Transaction value on which TDS needs to be deducted:

• Amount exceeding Rs. 50 lacs.
• TDS shall also be deducted even if purchases made for less than 50 Lac Rs. but payment of for purchase of goods made for more than Rs. 50 Lacs.

Example: A buyer whose turnover in preceding financial year exceeds Rs. 10 Crore received invoices for purchase of goods of Rs. 30 Lacs but made payment of Rs. 60 lacs. As Rs. 30 lacs is advance for purchase of goods. He shall be liable to deduct TDS on Rs. 10 Lacs at the time of payment.

• TDS shall be deducted on the value excluding Goods and service tax (GST) if deduction is made on the basis of invoice. However, if deduction is made on the basis of payment, TDS shall be deducted on the entire amount of payment.
• For the purpose of calculation of threshold limit of Rs. 50 Lacs, transaction during the period from 01^st April 2021 to 30^th June 2021 shall also be considered.

Example: Transaction value during the period 01^st April 2021 to 30^th June 2021 is Rs. 70 Lacs. Since transaction value before 01^st July 2021 is more than Rs. 50 lacs, TDS shall be deducted on every purchase from or payment to the seller with respect to whom Rs. 50 Lacs limit crossed.

• In case of purchase return if tax has already been deducted on purchases and the amount is refunded, then tax already been deducted on purchase return may be adjusted against next purchase

Non-applicability of the provisions:

• If TDS is deductible under any other provision of income tax act.
• If TCS is collectible under the provisions of income tax act, except u/s 206C(1H) i.e. TCS on sale of goods
• Transactions in securities and commodities through recognized stock exchange or cleared through recognized clearing corporation.
• Transactions in electricity, Renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with regulation 21 of the CERC.
• Purchase or payment by non-resident whose purchases not effectively connected with the permanent establishment.
• If the seller(Deductee) is a person whose entire income is exempt from income tax like RBI, ADB etc.
• If the seller has already collected TCS u/s 206(1H).

Other Important points:

• In case the buyer fails to deduct and pay the TDS under this section, then 30% of value of transaction shall be disallowed as expense.
• In case section 194Q and Section 206(1h) both are applicable, section 194Q shall prevail.

Section 194Q V/s 206(1H)