TDS on payment towards purchase of goods, proposed by Finance Bill, 2021

Introduction

Finance Bill 2021 proposes to introduce a new section, 194Q. Section 194Q of the Income-tax Act, 1961 (‘Act’) would be effective from 1 July 2021. Section 194Q provides for Deduction of tax at source (‘TDS’) on payment of for purchase of goods.

Who is required to Deduct TDS u/s 194Q

Buyer who is responsible for paying any sum to any resident seller is required to deduct TDS on purchase of any goods of the value or aggregate of value exceeding ₹ 50 lakhs in the financial year.  Financial year mentioned here is the previous year that is, the current financial year relevant to the assessment year under consideration.

Time when TDS is required to be deducted u/s 194Q

Buyer is required to deduct TDS 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.

Exemption to Buyer in certain cases from Section 194Q TDS deduction

However, buyer would not be responsible to deduct TDS in case total sales, gross receipts or turnover from the business carried on by buyer do not exceed ₹ 10 crore

The threshold limit of ₹ 10 crore as specified above is to be seen with respect to sales, gross receipts or turnover  during the financial year immediately preceding the financial year in which the purchase of goods is carried out.

There, certain situations, where the provisions of section 194Q are not applicable, the buyer would not be required to deduct TDS, such situations are discussed at length in the later part of this article.

Rate at which TDS is required to be deducted by buyer under Section 194Q

Buyer is required to deduct TDS at the rate of 0.1% of sum exceeding ₹ 50 lakh

Situation where the provisions of Section 194Q would not be applicable

The provisions of this section shall not apply to following transactions:

  • tax is deductible under any of the provisions of this Act

In case the transaction is already subject to TDS under any of the existing TDS related provisions, then in that case the buyer would deduct TDS under those respective sections relating to TDS and shall not deduct TDS under section 194Q

  • tax is collectible under the provisions of section 206C other than a transaction to which Section 206C (1H) applies

Let us say, a transaction is already subject to TCS u/s 206C, for example in case of sale of motor car above ₹ 10 lakh, Section 206C(1F) already mandates the seller of the motor car to collect tax at source.  Hence in such situation, section 194Q would not be applicable to buyer, because that transaction is already covered by the provisions of Section 206C other than 206(1H). Thus, here, buyer would not be required to deduct TDS u/s 194Q of the Act.

In case, the transaction is already covered by provisions of Section 206C(1H), then on a plain reading of section, it appears that the seller would collect TCS u/s 206C(1H) of the Act and buyer would deduct TDS u/s 194Q of the Act both.  Though, clarification or a guideline on this aspect by the Board should be issued, to avoid conflicting interpretation.

Author Bio

Qualification: CA in Job / Business
Company: N/A
Location: Mumbai, Maharashtra, IN
Member Since: 15 Aug 2020 | Total Posts: 1
CA. Anand Eriwal is a Seasoned Tax professional with over 15 years of experience, skilled in corporate taxation, personal taxation, international taxation and tax litigation. He has worked with Consultancy Firms across multiple business sectors and has experience in leading the direct tax function i View Full Profile

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