That Central Government has come out with Budget Amendment 2021 whereby provision for doing Tax Deduction at Source u/s. 194Q i.e. TDS on purchase of Goods by Purchaser is introduced and made effective w.e.f. 1st July, 2021. The brief synopsis of provisions are given as below:-

APPLICABILITY :

1. Section 194Q is applicable to those buyer whose annual turnover during preceding immediately financial year is above Rs.10.00 Crore and it is applicable only related to those dealers whose dealing turnover is above Rs. 50 Lacs during the financial year 2021-22 (Limit of Rs. 50 Lacs to be computed from 1.4.2021 to till date as per author’s understanding as term “financial year is used for computing turnover limit of Rs.50 Lacs)

2. Section 194Q is apart from Tax Collection at Source (TCS) which is also in force u/s. 206C(1H) and both are mutually exclusive thus only either TDS will be deducted OR TCS will be applicable. Further 194Q is having overriding effect over Section 206C(1H).

3. That prime responsibility for doing TDS is of Buyer u/s. 194Q who is purchasing goods and making payment to Seller. Thus in case buyer is not doing TDS (as being non eligible person, whose turnover of preceding year is below Rs. 10 Crore), then in such case seller will continue to collect TCS.

4. Rate of Tax Deduction at Source – TDS is 0.01% on value of Invoice

Illustration :-
Goods Purchased

Add: GST

Rs. 100000

Rs.   12000

Rs. 112000

TDS @ 0.1% on Rs. 112000/-  i.e. Rs. 112/- shall be deducted from payment made by buyer.

5. TDS shall be made earliest of (a) At time of making payment or (b) Credit entry for such purchase. Thus even advance payment shall also be subject to deduction of TDS. That above provision is applicable only on purchase of GOODS only and thus Services are out of above provision.

6. In case TDS is already being deducted on such supply of goods under any other provision of Income tax then provision of Section 194Q shall not be applicable. Eg. If supplies are made to Government Department and Govt. Deptt. is already doing TDS u/s. 194C, then above provision u/s. 194Q shall not be applicable. Now complication arises wherein vide section 194Q(5)(b) which excludes section 194Q from TDS in case of  applicability of Section 206C(1H). Thus in such cases provision of section 206C(1H) shall continue to remain in force. (author’s view)

7. That deducted TDS shall be deposited upto 7th of next month and TDS Return shall be filed.

8. That vide newly introduced section 206AB provision is made for doing TDS at higher rate in case of non filing of Income tax return by deductee for two continuous financial years. In authors’ opinion appropriate declaration u/s. 206AB should be taken from buyer deductee to confirm about filing of I.T. return for last two years are required for being Specified Person. In absence of such confirmation TDS shall be required to be made at higher of (a) double the rate of TDS Or (b) @5%. That in case of short deduction of TDS by person deducting TDS shall be subject to levy of penalty u/s. 271C equal to the amount of TDS required to be deducted and with Interest also. Thus proper and correct TDS should be deducted on payment made.

SUGGESTION : 

(a) In case of supply of goods:-  Declaration from Buyer should be taken about buyer’s eligibility for doing TDS u/s. 194Q OR not ?  If buyer is not “Specified Person”, then TCS will continue to be applicable.

(b) In case of purchase of goods:-  Appropriate correspondence should be made with Seller about stop of doing TCS w.e.f. 1.7.2021 so as to avoid double effect of TDS & TCS simultaneously.

Author Bio

Qualification: CA in Practice
Company: GOGRA & COMPANY, CHARTERED ACCOUNTANT
Location: JAIPUR, Rajasthan, India
Member Since: 10 Apr 2018 | Total Posts: 5
AUTHOR IS CHARTERED ACCOUNTANT AND IS ALSO LL.B. GRADUATE. WORKING IN FIELD OF DIRECT & INDIRECT TAXATION AND INSOLVENY AND BANKRUPTCY CODE BEFORE ALL APPELLATE FORUMS INCLUDING TRIBUNALS. View Full Profile

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5 Comments

  1. Krupasindhu Satpathy says:

    At point no. 1 of the Article Section 194C has been referred. Is it correct?
    I found the article very much useful.
    Regards

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