TDS on Purchase of Goods

Provision:-

Government inserted new TDS Section 194Q which will be effective from 01-July-2021, which say 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. 

Why it was required?

Last year government implemented TCS provision for Seller on Receipt of Sales of Goods, more than Rs. 50 Lakhs as sale consideration, during the current financial year. The TCS is payable on the amount of receipt which is greater than 50 Lakhs and received after 1st. Oct. 2020. The rate of TCS is 0.1% and Due to COVID-19 Pandemic Rate of TCS reduce by 25 % until 31 March 2021 and its effective rate is 0.075%. Other Condition for its applicability was “seller” 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 sale of goods is carried out.

There were instances where Seller Turnover is less than 10 Crore but his receipt from sales of goods to particular buyer exceeding Rs.50 Lakhs. Therefore, there was no liability of TCS on seller. To handle this situation Government come up with similar type of provision for Purchaser (Buyer) via TDS applicability.

Decoding of Provision:-   

  • “Buyer” 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.
  • In case Seller provided PAN card details, Rate will be 0.1% otherwise it will deducted @5 % as per Sec206 AA.
  • TDS Amount will be deduct by buyer on paying sum exceeding Rs.50 Lakhs for purchase of goods in any previous year.
  • Amount will be deducted on earlier of following:-
    • Payment Date
    • Credit of such sum to the account of the seller
  • The provisions of this section shall not apply to a transaction in following cases:-
    • tax is deductible under any of the provisions of this Act; and
    • tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies(TCS).
  • As per Exclusion provision under Sec194Q, TCS and TDS both will applicable in case of exchange of amount between Seller and Buyer, exceeding Rs.50 Lakhs, in any previous year. But this is been covered under Sec206C (1H), which specify that “Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount”.

Illustration:-

Seller Turn-over (In Crore)
Buyer Turn-over (In Crore)
Receipt or Payment for sale  or purchase of Goods in prev-ious year (In Lakhs)
Amt. on which tax will be calcul-ated
Seller PAN
Buyer PAN
TDS
TCS
Liable Person
Section under IT Act
Exclu-sion Section
Reason
9
12
54
4
Available
N/A
Yes @0.1%
N/A
Buyer
194Q
Out of scope of Sec 206C (1H)
Seller Turnover less than 10 Cr.
14
8
57
7
N/A
Available
N/A
Yes @0.1%
Seller
206C(1H)
Out of scope of Sec 194Q
Buyer  Turnover less than 10 Cr.
13
14
62
12
Available
Available
Yes @0.1%
N/A
Buyer
194Q
Out of scope of Sec 206C (1H)
Exclusion Provided under Sec 206C(1H)
9
12
54
4
Not Available
N/A
Yes @5%
N/A
Buyer
194Q/ 206AA
Out of scope of Sec 206C (1H)
Seller Turnover less than 10 Cr.
14
8
57
7
N/A
Not Available
N/A
Yes @1%
Seller
206C(1H) / 206AA
Out of scope of Sec 194Q
Buyer  Turnover less than 10 Cr.

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