Budget 2021 proposes to introduce new Section 194Q.It would be effective from 01.07.2021.
Who is Required to Deduct TDS:
Buyer: Turnover exceeds Rs. 10 cr in preceding FY.
When: Buyer is responsible for paying a sum of exceeding Rs. 50 Lakhs to a resident seller of goods in any previous year.
* The limit of Rs. 50 Lakhs need to be calculated from 1st April 2021 but TDS needs to be calculated from 1st July 2021.
Time of deduction: Payment or Credit whichever is earlier. Means actual sale or advance payment whichever is earlier.
Rate: TDS @0.1% but if PAN Not Available then TDS @ 5% on sum exceeding Rs. 50 Lakh
Non Applicability of this Section:
Correlation of Sec 194Q with Sec 206C(1H):
If any transaction is covered under both of the sections, Sec 194Q – TDS on Purchase of Goods and Sec 206C(1H) – TCS on sale of goods, then buyer needs to deduct only TDS and seller need not to collect TCS.
1. Buyer ‘B’ has turnover in FY 20-21 of Rs. 9 cr, then TDS u/s 194Q is not applicable as turnover does not exceed Rs. 10 cr.
2. Now, Suppose
i. Buyer ‘B’ has turnover in FY 20-21 of Rs. 11 cr. In this case, he has check for TDS provision from 1st July 2021.
ii. Seller ‘S’ has given him bills in period between 1st April – 30th June 2021 worth Rs. 60 Lakh. Then TDS to be deducted on excess payment = (60 Lakh-50 Lakh)*0.01% = Rs. 1000
iii. If PAN is not available then TDS = (60 Lakh-50 Lakh)*5% = Rs. 50,000
What if Buyer fails to deduct TDS:
U/s 40a(ia), 30% of such expenses shall be disallowed and be added to income of person.
In our example, if buyer fails to deduct TDS on Rs. 10 Lakh, then 30% *10 Lakh = Rs. 3 Lakh shall be added to his income and tax accordingly.