A Glimpse on Practical Issues of TDS on Purchase of Goods under Section 194Q

A Glimpse on Practical Issues of TDS on Purchase of Goods Under Section 194Q of The Income Tax Act, 1961

Applicability

This section was introduced by Finance Act, 2021 and is effective from 1^st of July 2021.

This section applies to any buyer who is responsible for paying any sum to any resident seller for purchase of any goods of the value or aggregate of value exceeding rupees fifty lakhs in the previous year at the time of crediting such sum to the account of such seller or at the time of payment to such seller. Rate of tax to be deducted shall be 0.1% of such sum in excess of Rs. 50,00,000/-

TDS under this section and TCS under section 206C(1H) of the Act are mutually exclusive. TCS under section 206C(1H) of the Act is applicable on sellers at rate of 0.1% on the amount to be received as sale consideration in excess of Rs. 50,00,000/- .

TDS under section 194Q is applicable to buyers whose total turnover in the preceding year is more than Rs. 10 crores and in the current year the purchases from the seller or the payment (including advance payments) to the seller is more than Rs. 50 lakhs. If above conditions hold true buyer shall have to deduct TDS @ 0.1%.

When to deduct TDS

Triggering point to deduct TDS will be earlier of the following events:

• At the time of credit of such sum to the account of such seller or even if such credit is being made in the Suspense Account (in short – at the time of purchase entry)
• At the time of payment (that means that if purchase has not been effected yet but the payment has been made, tax under this section shall have to be deducted)

Further, If buyer of the goods is liable for TDS under this section and seller is liable for TCS under section 206C(1H), TDS under section 194Q shall prevail and buyer will have to deduct tax under section 194Q of the Act.

Higher rate of TDS:

Section 206AB applies to both on TDS as well as on TCS. Section 206AB states that, where tax is required to be deducted/collected at source on any sum or income or amount paid/received or payable or credited by any person to/from the specified person, then tax shall be deducted/collected at higher of the following rates:

• At twice the rates specified in the relevant provisions of the act
• At twice the rate or rates in force
• At the rate of 5%

Further, Sub-section (2) of Section 206AB provides that on Non-furnishing of PAN by the specified person, Section 206AA shall be applicable in addition to this section respectively and the tax shall be deducted/collected at higher of two rates provided in Section 206AB and in Section 206AA.

Meaning of Specified Person under Section 206AB

The Section 206AB (3) specifies who shall be considered as “Specified Person”. ‘Specified person’ means a person which satisfies all the below mentioned conditions but shall not include a non-resident who does not have a permanent establishment in India:

• Person who has not filed their Income Tax Return for two previous years immediately preceding the previous year in which tax is required to be deducted/collected (hence for year 2021-22, relevant previous years shall be 2020-21 and 2019-20)
• The time limit for filing of such return of income U/s 139(1) has expired.
• Aggregate of Tax deducted/collected at source in each of these two financial year is INR 50,000/- or more

How to check for “specified Persons”

In above context, Income Tax Department has provided a new functionality “Compliance Check” to facilitate tax deductors/collectors to verify if a person is a “Specified Person” as per section 206AB & 206CCA.This functionality is made available through Reporting Portal of the Income-tax Department (https://report.insight.gov.in). Through this functionality, tax deductors or collectors can verify if any person (PAN) is a “Specified Person” as defined in Section 206AB & section 206CCA after registering on the portal and after complying the whole process.

Due date of depositing TDS:

• For the months of April- February: 7^th of next month.
• For the month of March: 30^th April.

Due date of TDS returns: