Section 194Q to the Income-tax Act, 1961 has been introduced vide the Finance Bill, 2021 for deduction of tax at source in case of purchase of goods.
Last year Section 206C was introduced which extended the TCS provisions to the seller of goods. As per the provision, a seller is required to collect tax at the source on the sale of goods if the aggregate value of such sale exceeds Rs.50 lakh during a financial year (w.e.f. October 2020 for FY 2020-21). Section 194Q is also very similar to section 206C of the Income-tax Act, 1961 except that it is deducted by the buyer on purchase of goods if goods are purchased for a value or aggregate of value exceeding Rs. 50 lakhs in any previous year.
The following section discusses the provisions of section 194Q of the Income-tax Act, 1961 in detail. A buyer is required to deduct TDS under Section 194Q if the following criteria are satisfied:
For current Financial Year, even though the section is made applicable from 1st July, 2021, it is interpreted that the threshold limit of Rs. 50 lakhs shall be computed from 1st of April, 2021.
Hence, there are two relevant points to note regarding the deduction:
a. If purchase value exceeds Rs. 50 lakhs before 01/06/2020, then TDS is to be deducted on all purchases made after 01-07-2021.
b. If purchase value has not exceeded Rs. 50 lakhs before 01/06/2020, then TDS shall be deducted as and when purchase value (Calculated from 1st April) exceeds 50 lakhs.
1. Purchases up to 30/06/2021 – Rs. 45,00,000
Purchases in July – Rs. 15,00,000
Amount on which TDS is to be deducted will be on Rs. 10,00,000 i.e. Rs. 45,00,000 + Rs. 15,00,000 – Rs. 50,00,000
2. Purchases up to 30/06/2021 – Rs. 70,00,000
Purchases in July – Rs. 20,00,000
Amount on which TDS is to be deducted will be on Rs. 20,00,000 i.e. all purchases after 01/07/2021.
The next important question is that if a transaction attracts the provisions of both section 206C and 194Q, what is to be done? In this regard, the Act specifies that the buyer shall have the primary and foremost obligation to deduct the tax and no tax shall be collected on such transaction under Section 206C(1H). However, if the buyer makes a default, the liability to collect the tax gets shifted to the seller.
Turnover of buyer in FY 2020-21 Rs. 20 crores
Turnover of seller in FY 2020-21 Rs. 20 crores
Purchases during FY 2021-22 Rs. 70,00,000
In this case, both the provisions of section 206C and 194Q are applicable. However, in this case, compliance under section 206C is not required to be made. The buyer shall deduct TDS @ 0.1% under section 194Q and undertake the necessary compliances. If the buyer makes a default, the liability to collect the tax gets shifted to the seller who will then have to make compliances of section 206C of the Income-tax Act.