prpri Purchase of Goods brought under tax purview with 194Q Purchase of Goods brought under tax purview with 194Q

A new section 194Q is proposed to be introduced effective from 1st July 2021 towards TDS on purchase of Goods.

Background:

As per the estimation, it is said that only 5% of the Indian population files Income Tax returns and out of which only 1% pays tax. Government has been trying relentlessly to plug the gaps and bring everyone under the tax purview. Introduction of Section 206C (1H),TCS provision on sale of goods was one such action introduced on 1st October 2020 in this direction. Digitisation has been helping in this direction too.

Applicability:

The provisions are applicable as below

1. Buyer who’s turnover or gross receipts is more than 10 Crore in the previous financial year

2. Applicable to any person who purchases goods from a seller in excess of 50 lakhs. Limit is to be seen for transaction with each seller/customer.

3. Deduction of TDS at the time credit of amount to the account of seller or payment whichever is earlier for value in excess of 50 lakhs

4. Purchase of goods includes capital goods also as the same falls under the definition “Goods”

5. TDS is deductible on advance payment of purchase of goods too

6. Applicable only to domestic transactions. Import transactions are excluded

Rate of Tax:

Tax is deductible at .1% on the value of transaction in excess of Rs 50 lakhs. As of now assesses cannot apply for Lower TDS or Nil certificate for 194Q section since this section has not been included under 197/197A in Finance Act 2021. Lower or Nil TDS certificate benefit is not given for 206C(1H) also.

Transaction on which both 194Q and 206C(1H) is applicable:

In transactions, where both 194Q and 206C (1H) is applicable, 194Q prevails which means buyer shall deduct the TDS at .1% and seller need not have to deduct TCS under 206C (1H) however if the buyer fails to deduct TDS then the onus shifts on seller to deduct TCS at .1% under 206C (1H).

Inference from 206C(1H):

1. Whether 50 lakh threshold to be calculated from 1st April 2021 or 1st July 2021: Basis clarification given for 206C (1H) through circular number 17 dated 29-09-2020 that threshold limit to be calculated from 1st of April though section was introduced on 1st October 2020, the same can be applied to section 194Q therefore considering 50 lakh threshold from 1st April 2021.

2. Is TDS to be deducted inclusive of GST: Since TDS to be deducted on purchase value and as per circular number 17 dated 29-09-020 in case of 206C(1H), CBDT had clarified that no adjustment to be made for indirect tax under this provision, considering the same reference here, TDS would be calculated inclusive of GST for TDS under section 194Q

Comparison:

194Q TDS on purchase of goods 206C (1H) TCS on sale of goods
Applicable on purchase of goods Applicable on Sale of goods
Turnover limit 10 Crore in the previous financial year Turnover limit 10 Crore in the previous financial year
Threshold limit > Rs. 50 lakhs during financial year Threshold limit > Rs. 50 lakhs during financial year
Imports excluded Exports excluded
Effective date 1st July 2021 Effective date 1st October 2020
Rate .1% Rate.1%
Buyer shall deduct at the time of credit or payment whichever is earlier Seller shall collect at the time of receipt of amount

Conclusion:

Bringing 194Q as TDS on purchases, now purchase also has come under Income Tax lens. In totality most of the transactions with vendor or customer above 50 lakhs is under the lens of department.

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