Sec 194Q-TDS on Purchase on Goods worth Exceeding Rs. 50 Lakhs | Correlation with 206C(1H)-TCS on Sale of Goods


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:

  1. When buyer is paying such sum for purchasing services.
  2. TDS is already deducted of such buyer in some other section like 194J, 194C,etc…
  3. Transactions on which TCS is applicable under 206C other than 206C(1H)(TCS Provision- TCS on sale of goods)

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.

Example –

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.

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April 2021