prpri Section 194Q: TDS on purchase of goods – Analysis Section 194Q: TDS on purchase of goods – Analysis

Section 194Q was inserted in the Income Tax Act, 1961 vide the Finance Act, 2021

Applicability: Any person, being a buyer who is responsible for paying any sum to any seller (being a resident) for purchase of any goods (including capital goods), where the value or aggregate of such values, exceeds ₹50 lakhs in any P.Y., shall deduct TDS.

Applicable w.e.f.: 1st July, 2021.

Rate of TDS: 0.1% (5% in case PAN is not furnished) of the purchase value exceeding ₹50 lakhs.

Explanation: The value on which TDS shall be charged is the sum left after deducting ₹50 lakhs from the total value.

[Total value (-) ₹50 lakhs= value on which TDS shall be charged]

Time of deduction: Earlier of the following:

  • At the time of credit of such sum to the account (even if Suspense A/c) of the seller
  • At the time of payment by any mode

Conditions for deduction:

The tax shall be deducted only when the following conditions are satisfied:

  • Purchase of goods from a resident seller
  • Goods are purchased for a value or aggregate of value exceeding ₹50 lakhs in any P.Y.
  • The person buying shall fall into the meaning of buyer as provided for this section

Buyer: For the purpose of this section, buyer means a person whose total sales, gross receipts or turnover from the business, exceeds ₹10 crores during the F.Y. immediately preceding the F.Y. in which goods are purchased. Further, the Central Government may, by notification in the Official Gazette, specify the list of persons who shall not be considered as buyers for this matter.

Note: As of now, there’s no such clarification in regards to the inclusion of GST in the total value of goods. Hence, for the purpose of computing the total turnover, the amount of GST shall be included.

Role of Buyer & Seller:

Buyer: To deduct TDS.

Supplier: Obtain a declaration from buyer in regards to timely deduction and payment of TDS.

Applicability on imports:

Since this section is applicable only when purchases are made from a resident seller, hence, no TDS shall be deducted in case of imports.

Due date of depositing TDS with the Govt.:

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

Due date of TDS return: 

QUARTER PERIOD DUE DATE
Q1 April- June 31st July
Q2 July- September 31st October
Q3 October- December 31st January
Q4 January- March 31st May

Exceptions: The provisions of this section shall not apply to transactions where:

  • tax is deductible under any other section
  • tax is collectible under section 206C other than a transaction to which sub-section (1H) of section 206C applies

Explanation: This implies that, if in case TDS or TCS is applicable on a transaction under some different section(s), then provisions of section 194Q shall not apply.

Further, in case both sections 194Q and 206C(1H) are applicable then in that case the provisions of section 194Q shall prevail.

Non- compliance: As per section 40a(ia) of Income Tax Act 1961, in case of non- deduction/ non- payment of TDS, amount to the extent of 30% of the value of transaction on which TDS was to be deducted shall be disallowed to the buyer.

Explanation:

SITUATION-

1. Goods purchased: ₹55 lakhs

2. Value of goods on which TDS is chargeable u/s 194Q: excess of ₹50 lakhs i.e., ₹5 lakhs

3. TDS @ 0.1% on ₹5 lakhs: ₹500

4. TDS not deducted by the buyer

What will be amount of disallowance?

Answer: Amount of disallowance: 30% of ₹5 lakhs i.e., ₹1.5 lakhs.

SECTION 194Q V.S. SECTION 206C(1H)

In the existing section 206C of the Income Tax Act, 1961, a new sub- section (1H) was inserted vide the Finance Act, 2020 which provides that a seller having turnover of more than ₹10 Crores in the preceding F.Y. is required to collect from the buyer, TCS @ 0.1% of the consideration received, for sale of goods exceeding ₹50 lakhs. This provision was made effective from 1st October, 2020.

This had already created a lot of ambiguities due to the reasons that it was made applicable during the mid of the year. To top it up, the Govt. introduced Section 194Q, in the name of resolving the ambiguities as created by Section 206C(1H), which in essence doubled up the issues.

Which section will prevail in case of overlapping between section 194Q and 206C(1H)?

Ans. We have already noted in the above-mentioned points that, if both the sections are applicable in a particular case at the same time, then section 194Q shall prevail over section 206C(1H).

Difference between section 194Q & section 206C(1H): 

PARTICULARS 194Q 206C(1H)
Purpose Tax to be deducted Tax to be collected
Responsible person Buyer Seller
Applicable w.e.f. 1st July, 2021 1st October, 2020
Time of deduction/ collection Payment or credit whichever is earlier Receipt
Rates 0.1% (5% if PAN not available) 0.1% (1% if PAN not available)
Overriding effect 194Q prevails over 206C(1H)

Disclaimer: The author is based in Jabalpur and is a Practicing Company Secretary dealing in Corporate, Legal & Taxation services. The information contained in this write up, as provided by the author, is to provide a general guidance to the intended user. The information should not be used as a substitute for specific consultations. Author recommends that professional advice is sought before taking any action on specific issues.

The author can also be reached at cstanveersaluja@gmail.com

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20 Comments

  1. Dinesh says:

    I Received a invoice 54.80 Lakh
    in this invoice 52 Lakh in goods value, 1.3 Lakh Commission, 1.0 Lakh is Labour and 0.5 is fright

    Both Seller and buyer turnover is over 10 CR
    I already libel for deduct tds under 194H & 194C

    Can i also libel to deduct under 194Q? if libel then which amount

  2. JD Asirvadam says:

    If the threshold of 50 Lakhs was observed in the month of August then do we need to collect TDS as per sec 194Q on sales that happened from 1st July 2021

  3. anil says:

    Sir, under the provision of section 194q is there any liability of purchaser to file any declaration on income tax portal regarding section 194q

  4. Sathishkumar Jayabalan says:

    Whats the purpose of this changes in amending those TDS rules by paying the TDS charges separtely by the buyer, the seller can deduct and issue the certificate to the buyer, already we practicing with TDS old was good, and on income tax also we pay adwance taxes quaterly, whats exactly the purpose of changing this to new TDS u/s 194Q

  5. Sangram says:

    Sir, Please confirm If there is More Than Rs 1 crore Balance outstanding in FY-20-21 & Payment Made RS 70 Lac in Apr-21 to 30-JUne-21, So in Next Payment of RS 30 Lacs will make after 1 July, So TDS 194 Q Applicable

  6. Abhijit bhattacharjee says:

    If any Payment certificate made 1st date of july whose invoice value is more than 50 lakhs,but invoice date is the month of june,194 q will be applicable in that case or not?

    1. CS Tanveer Singh Saluja says:

      Yes, it is applicable. For the purpose of testing limit of ₹50 Lakh we have to consider total value pertaining as to the F.Y. in subject.

  7. Kartik sahore says:

    Sir for turnover 10crore do we have to consider sales in P/L A/c plus Gst also. Means SALES ledger with total invoice value. Please clarify.

  8. devendran48 says:

    how calulcate TDS IN PURCHASE VALUE AND ALSO
    WHEN COLECTED TDS ON PURCHASE THE EALER CHARGED IN SALE OF EVERY BILL ITSHOWN ALL GOODS INCRESED RATES ON SELLING POINT HOW SOLVE

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