The Finance Act, 2021 has introduced new section 194Q which will be applicable from 1st July 2021 and is going to impact drastically every business operating in India wrt TDS on purchase transactions. The provisions of new section 194Q require the specific buyer to deduct TDS on the purchase of goods from the resident seller.
As per Section 194Q(1), ‘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.’
Rates u/s 194Q-
| Availability of PAN | Rate |
| Seller having PAN | 0.1% |
| Seller not having PAN | 5% |
Provisions of section 194Q-
1. Buyer is liable to deduct Tax
2. The turnover of the purchaser shall be more than INR 10 crores in the preceding Financial Year
3. TDS deductible at the time of credit of such sum to the account of the resident seller or at the time of payment thereof by any mode, whichever is earlier
4. TDS deductible on advance payments also
5. Goods means as per Sale of Goods Act, 1930 or CGST Act, 2017
6. TDS deductible on the excess amount of Rs 5o lakhs
7. DS deductible when Goods are purchased for a value or aggregate of value exceeding Rs. 50 lakhs in any previous year
As per explanation to section 194Q, the term ‘buyer’ means as under-
- A person having total sales/ gross receipts/ turnover exceeding INR 10 Crores in the immediately preceding Financial Year in which the specified purchase of goods took place;
- Buyer will not include any person notified by the Central Government.
Exemptions available under section 194Q-
TDS provisions covered under section 194Q are not applicable under the following cases-
- Transactions on which TDS is already deductible under other provisions of the Income Tax Act; or
- Transactions on which TCS is collectable as per provisions of section 206C[other than a transaction on which TCS is collectable under section 206C(1H)].
The motive behind Govt. having implemented this section seems to be very clear ie.to bring about a change where a few transactions with large amount are being traced without any trail where GST amounts is being misappropriated. Govt. intends to bring all such purchase transactions under some audit trail so that fake or frivolous transactions could be tracked or brought under the trail of TDS provisions and checked in future, if required.
Other important points related to Section 194Q
Some of the important points are summarized hereunder-
1. Provisions ofsection 194Q are not applicable when the seller is a non-resident.
2. TDS is also deductible under section 194Qagainst any amount credited to ‘suspense account’ or any other account under the books of accounts of the person liable to make payment of such income.
3. TDS would be deductible only under section 194Q for transactions, wherein, TDS is deductible under both the provisions i.e., section 206C(1H) and section 194Q.
Whereas Section 206C(IH) pertains to TCS provisions on sale of goods by a buyer, there may arise a conflict / a lot of doubts whether it will lead to double taxation or a either of the two section will supersede the another one.
In this regards, Section 194Q clarifies that no tax is required to be deducted by a person under this provision if tax is deductible under any other provision or tax is collectable under section 206C.
Further, second proviso to section 206C(1H) provides as under:-
“Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.”
Most of the Assesees have suitably configured in their respective Accounting Software’s/ ERP’s to collect TCS in the Invoice itself though the same doesn’t seem to be compliant of provision in case of Advance payments as TCS on sale of goods is specifically applicable on the collections received. But consequent to applicability of subject provision effective 1st July 2021 there will not be a requirement to collect TCS under section 206 C (1H) in case Purchaser (s) is required to deduct TDS under section 194-Q.
1. Some Scenarios of Section 194Q
| Particulars | Scenario-1 | Scenario-2 | Scenario-3 |
| Turnover of Seller (In Cr.) | 12 | 6 | 12 |
| Turnover of Buyer (In Cr.) | 6 | 12 | 12 |
| Sale of Goods (In Cr.) | 2 | 2 | 2 |
| Sales Consideration paid during the year (In Cr.) | 1 | 1 | 1 |
| Who is liable to deduct or collect tax? | Seller | Buyer | Buyer |
| Rate of Tax | 0.1% | 0.1% | 0.1% |
| Amount on which tax to be deducted or collected (In Cr.) | 0.5 | 1.5 | 1.5 |
| Tax to be deducted or collected | 5,000/- | 15,000/- | 15,000/- |
2. If the Purchaser fails to deduct TDS as applicable, Section 40a(ia) is going to provide that the value of Purchase transactions on which TDS is not deducted will be subject to 30% disallowance means thereby that even Purchases supported by Bills or GR’s can be disallowed to the extent of 30% of the transaction value if TDS is not deducted.
3. As not specifically mentioned, provisions of section 194Q apply to the purchase of both the types of goods i.e. capital as well as revenue.
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