FAQs on TDS under Section 194Q Inserted from 01.07.2021

1. On which type of Assessee section 194Q applies?

Ans. Any person, being a buyer whose total sales/gross receipts/turnover from the business carried on by him exceed 10 crore rupees during the F.Y. immediately preceding the F.Y. in which the purchase of goods is carried out, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.

and who is responsible for paying any sum to any resident (i.e. seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year.

2. What will be Rate of TDS?

Ans. TDS shall be deducted at an amount equal to 0.1 % of such sum exceeding 50 lakh rupees as income-tax, if the seller has furnished his PAN or Aadhaar, otherwise, the tax shall be deducted at the rate of 5%.

3. Time of Deduction of TDS?

Ans. 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.

4. Wheter section 194Q applies if any sum referred to in sub-section (1)of Sec.194 is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such income?

Ans. Yes, the said section will be applicable as such credit of income in Suspens a/c or any other a/c shall be deemed to be the credit of such income to the account of the payee.

5. On Which transaction provision of the section 194Q not applicable?

Ans. The provisions of this section shall not apply to a transaction on which

(a) tax is deductible under any of the provisions of this Act like sec. 194O; and

(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.]

6. IS the provision is applicable on transactions carried through various Exchanges:(Stock exhanges and clearing corporations)?

Ans. No, Since it has been clarified vide Guidelines under section 194Q of the Income-tax Act, 1961 – dated 30.06.2021 vide Circular No. 13 of 2021 on Point no 4.1.

7. Whether the provision of sec 194Q Applicable on payment or credit made before 30th June2021?

Ans. The provision of this sub-section shall not apply on any sum credited or paid before 1 st July 2021. If either of the two events had happened before 1st July 2021 , that transaction would not be subjected to the provisions of section 194Q of the Act.

Hence, if a person being buyer has already credited or paid fifty lakh rupees or more up to 30th June 2021 to a seller, the TDS under section 194Q shall apply on all credit or payment during the previous year, on or after I st July 2021 , to such seller.

8. Whether non-resident can be buyer under section 194Q of the Act?

Ans. It is clarified that the provisions of section 194Q of the Act shall not apply to a non-resident whose purchase of goods from seller resident in India is not effectively connected with the permanent establishment of such non resident in India.

For this purpose, “permanent establishment” shall mean to include a fixed place of business through which the business of the enterprise is wholly or partly carries on.

9. Whether tax is to be deducted when the seller is a person whose income is exempt?

Ans. No, as It has been clarified that the provisions of Section 194Q of the Act shall not apply on purchase of goods from a person, being a seller, who as a person is exempt from income tax under the Act (like person exempt under section 10) or under any other Act passed by the Parliament (Like RBI Act, ADB Act etc.).

Similarly, with respect to sub-section (1 H) of section 206C of the Act, it is clarified that the provisions of this sub-section shall not apply to sale of goods to a person, being a buyer, who as a person is exempt from income tax under the Act (like person exempt under section 10) or under any other Act passed by the Parliament (Like RBI Act, ADB Act etc.).

The above clarifications would not apply if only part of the income of the person (being a seller or being a buyer, as the case may be) is exempt.

10. Whether tax is to be deducted on advance payment?

Ans. Yes, as it has been clarified that the provisions of section 194Q of the Act shall apply to advance payment made by the buyer. It is clarified that since the provisions apply on payment or credit whichever is earlier, the provisions of section 194Q of the Act shall apply to advance payment made by the buyer to the seller.

11. Whether provisions of section 194Q of the Act shall apply to buyer in the year of incorporation?

Ans. No, as It is clarified that under section 194Q of the Act a buyer is required to have total sales or gross receipts or turnover from the business carried on by him exceeding 10 crore rupees during the financial year immediately preceding the financial year in which the purchase of good is carried out.

Since this condition would not be satisfied in the year of incorporation, the provisions of section 194Q of the Act shall not apply in the year of incorporation.

11. How the APPLICATION OF SECTION-194O, 206C(1H) & 194Q?

Ans. *If TDS Deducted By E-Commerce Operator U/S 194O, Then Transaction Will Not Be Subjected To TDS U/S 194Q

• If Transaction Is Both Within The Purview Of 194O & 194Q, Then The Tds Will Be Deducted U/S 194O & Not 194Q.
• If Transaction Is Both Within The Purview Of 194O & 206C(1H), Then The TDS Will Be Deducted U/S 194O & Not 206C(1H).
• If Transaction Is Both Within The Purview Of 194Q & 206C(1H), Then The TDS Will Be Deducted U/S 194Q & Not 206C(1H).

12. Whether Section-194Q Applies If Buyer’s Turnover In Preceding Year Is Rs 10 Crore Or Less ?

Ans. If Turnover From Business Carried On By Buyer Exceeds Rs 10 Crore Then Section-194Q Will Be Applicable. Non Business Income Will Not Be Considered In The Ten Crore Limit.

13. Whether TDS u/s 194Q is required to be deducted on GST Component?

Ans. Accordingly with respect to TDS under section 194Q of the Act, it is clarified that when tax is deducted at the time of credit of amount in the account of seller and in terms of the agreement or contract between the buyer and the seller, the component of GST comprised in the amount payable to the seller is indicated separately, tax shall be deducted under section 194Q of the Act on the amount credited without including such GST.

However, if the tax is deducted on payment basis because the payment is earlier than the credit, the tax would be deducted on the whole amount as it is not possible to identity that payment with GST component of the amount to be invoiced in future.

14. How the treatment of Purchases return to be made for section 194Q?

Ans. Further, with respect to purchase return it is clarified that the tax is required to be deducted at the time of payment or credit, whichever is earlier. Thus, before purchase return happens, the tax must have already been deducted under section 194Q of the Act on that purchase. If that is the case and against this purchase return the money is refunded by the seller, then this tax deducted may be adjusted against the next purchase against the same seller.

No adjustment is required if the purchase return is replaced by the goods by the seller as in that case the purchase on which tax was deducted under section 194Q of the Act has
been completed with goods replaced.

15. Is section 194Q applicable to the purchase of capital goods?

Ans. Yes, section 194Q applies to purchase of all goods whether on capital or on revenue account.

16. Whether TDS to be deducted on the purchase of immovable property by a developer?

Ans. Goods’ means every kind of movable property subject to certain exceptions and inclusions. Thus, the immovable property shall not be treated as ‘goods’. Consequently, the TDS shall not be deducted from the purchase of immovable property by a developer.

17. Whether TDS is liable to be deducted on purchase of Jewellery not connected with business?

Ans. In section 194Q, there is no condition that the purchases should be connected with the business only. Thus, if a person is falling within the definition of the buyer, tax is required to be deducted even if such purchase is not connected with the business carried on by him Jewellery, being a movable property, is covered within the term goods. There is no specific exclusion under Section 194Q for deduction of TDS on purchase of jewellery. Thus, the tax
shall be deductible on purchase of jewellery if other conditions are also fulfilled.

18. Whether additional, allied and out-of-pocket expenses form part of the purchase value of goods?

Ans. Where these expenses have been reflected in the purchase invoice itself, it should form part of purchase value. If they are charged through a separate invoice, it should not form part of purchase value.

19. Whether tax to be deducted on the purchase of goods by one branch from another?

Ans. NO, Since TDS under this section is required to be deducted by any person, being a buyer, responsible for making payment to the seller for the purchase of goods. Thus, the existence of two distinct parties as ‘seller’ and ‘buyer’ is a pre-requisite to construe a transaction as a purchase. The condition of purchase is not fulfilled in the context of branch transfer.

Therefore, the provisions of this section shall not apply in the case of branch transfers.

20. Whether buyer shall be treated as assessee in default if the seller pays the tax due on the income declared in the return of income?

Ans. Section 201 of the Income-tax Act provides that a deductor, who fails to deduct tax at source, is not deemed to be in default if the payee has considered such amount while computing income in the return and has paid the tax due on such declared income. The deductor will have to obtain a certificate to this effect from a Chartered Accountant in Form No. 26A and submit it electronically.

Thus, the buyer shall not be deemed as assessee-in-default if the seller has taken into account the purchase amount while computing his income and has paid the tax due on the income declared in the return.

21. If the seller has multiple units, whether purchases made from different units need to be aggregated?

Ans. In other words, if different units of the seller are under the same PAN or Aadhaar number, the amount paid or payable to all such units shall be aggregated to compute the limit of Rs. 50 Lakhs.

22. In which cases Sec 1 94Q is not applicable?

Ans. The provisions of this section shall not apply to a transaction on which—

(a) tax is deductible under any of the provisions of this Act (Actual deduction is not required it is only tax is deductible) ; and

(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1 H) of section 206C

i.e if the tax collected U/s 206(1H) – Still the Provisions of Sec 194Q is applicable irrespective of tax collected, provided all the conditions satisfied U/S 194Q.

if the tax collected U/s 206C – then the Provisions of Sec 194Q is not applicable.

If the tax deductible U/s 194Q – then the provisions of Sec 206(1H) not applicable. (Sec 206(1 H) not applicable, 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).

(c) Not applicable in case of seller is Non Resident (i.e Seller must be resident and there is no restriction on buyer).

23. From which date the provisions of Sec 194Q Applicable?

Ans. The provision of Sec 194Q notified in Finance Act, 2021 and applicable from 01st July 2021.

24. What are the consequences of not deducting or not depositing TDS?

Ans. As per sec 40(a)(ia), if TDS is not deducted or Deducted but not deposited then 30% of the amount on which TDS is to be deducted and deposited will be added to the Income of that person.

However on payment of such TDS in the subsequent year, the 30% of such amount added back in the previous is allowed as deduction in the year in which Tax deducted is paid.

25. Is this applicable for all types of assesses like individuals and firms?

Ans. The provisions are applicable to all types of assessees whoever satisfies the definition of buyer. At present, there are no exclusions made.

26. Is it applicable for the goods alone or includes services also?

Ans. The new provision is applicable on purchase of goods only and not services.

27. Which is the base year for the threshold limit of Rs.50 lakhs?

Ans. Limit of 50 lakhs is considered in each financial year. The 50 lakhs exemption is for one financial year for a single seller.

28. Transfer of goods on testing purpose?

Ans. Section 194Q provides that buyer shall deduct TDS on purchase of goods. Considering that the goods are transferred for the purpose of testing and no purchase made, this provision will not apply.