prpri Sec-194Q-TDS or Tedious Tax!! Sec-194Q-TDS or Tedious Tax!!

By now You must have already gone through hundred of articles explaining cumbersome new provision of Sec.194Q which is coming w.e.f. 01.07.2021 by the Finance Act,2021. This is my humble attempt  to simplify the same to  make it understandable to layman aka taxpayer.

If you happen to go through Honorable FM’s budget speech of 2021, the rationale given behind introducing provision of Sec.194Q is to “widen the scope of TDS“!  As if scope of TDS is not already wide enough!!

1. Provision u/s 194Q as per the Act:

As per this section ,  Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, 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, deduct an amount equal to 0.1 per cent of such sum exceeding fifty lakh rupees as income-tax.

The “buyer” has been defined to “means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year 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.”

2. Applicability:

  • Eligible Buyer:

The provisions of this section are applicable only those buyers (deductor) whose sales turnover or gross receipts during the preceding financial year is exceeding 10 Cr.

For e.g, to check applicability for F.Y.2021-22, one is needed to check turnover of the F.Y.2020-21.

  • Eligible Purchases:

The threshold defined for purchases is Rs. 50 lacs during the previous year.

CBDT clarification is awaited with regards to reckoning limit of Rs.50 lacs for the F.Y.2021-22.

3. Point of Deduction:

Like other sections of TDS, here also TDS is required to be deducted at the time of credit of such sum to the account of the seller or at the time of payment by any mode, whichever is earlier.

4. Rate of Deduction:

  • In case PAN of the Seller is furnished – 0.1%
  • In case non-furnishing of PAN – 5 %

5. Interplay between provisions of Sec. 194Q and 206 (1H):

It is clarified that; where provision of both TDS on Purchase of Goods and TCS on sale of goods u/s 206( 1H) are applicable, provision of Sec.194 Q shall prevail.

In other words, buyer has primary obligation to deduct TDS on purchase of goods and in such case, seller is not required to collect TCS from the buyer.

In this regards, proper communication is must between buyer and seller to establish primary onus. It is suggested to receive declaration from both the parties to avoid litigation in future.

6. Procedural Aspects:

Procedural aspects such as challan (ITNS No.281), Returns and interest on late payment remain the same as applicable to prevailing TDS provisions.

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Qualification: CA in Practice
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Location: VADODARA, Gujarat, India
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3 Comments

  1. sriram says:

    Madam, also if a vendor has not filed returns for previous two years, the rate would be 5% which is not captured in your article (if TDS is more than Rs 50,000 in each of the financial year as per Sec 206AB )

  2. KRUTARTH PARIKH says:

    kindly Clarify 3 things as under

    1. TDS 0.1% of what ? Basic or Basic + GST as incase of TCS we are doing

    2. which kind of confirmation required from Vendor / Customer ??

    3.like sec.194Q, 30 % disallowed u/s 40 I (ai) in case of fail to submit tax to government is therre same provision in case of sec.206AB & 206CCA TDS on expenses ?

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