The Finance Act 2021, has widened the family base of the TDS Chapter by introducing a new member namely Section 194Q w.e.f. 1st July 2021. Likewise, Last year govt. introduced TCS on the Sale of Goods u/s 206C(1H). Earlier the applicability of TDS or TCS provisions were restricted to some specific items of Income or expenditure only but nowadays the scope of these provisions enlarged to such a scale that it has covered the normal routine sale and purchase transactions. One more thing is to notice that in both the sections rate of deduction is kept at very lower side i.e., 0.1% only, this implies that govt introduce theses new sections aiming to have more reporting of the transaction rather just to collect the revenue. Govt believes that if once the transaction gets reported, such person has to disclose such transaction in his Income Tax Return or GST Return and if not so disclosed then govt can easily track and find out the non-compliance person.

Firstly, I am reproducing herewith the text of section 194Q for ready reference, so that it can be easy to understand.

Extract of of Section 194Q

[Deduction of tax at source on payment of certain sum for purchase of goods.

194Q. (1) 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.

Explanation. —For the purposes of this sub-section, “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, 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) Where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

(3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.

(4) Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and the person liable to deduct tax.

(5) The provisions of this section shall not apply to a transaction on which—

(a) tax is deductible under any of the provisions of this Act; and

(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.]

Based on the above reading it can be concluded that:

Applicability of Section 194Q

> Applicable on TDS on Purchase of Goods and goods can be Capital goods as section doesn’t make any distinction between Capital Goods and Normal routine goods.

> Applicable from 01.07.2021.

Condition for Deductor: –

> Provisions of Section 194Q imposes primary liability on buyer to deduct tax

> Applicable on a buyer only if his sales in Last year exceed Rs. 10 Crore

> Goods are purchased for a value or aggregate of value exceeding Rs. 50 lakhs in any previous year.

> The buyer purchases goods from a resident person.

> TDS shall also be deducted on advance payment made

Threshold limit for Section 194Q:

> Not required to deduct TDS if value or aggregate of the value of the purchase of goods up to Rs. 50 Lac in a year and after crossing the limit of Rs. 50 Lac TDS required to be deducted exceeding Rs. 50 Lac.

Rate of TDS for Section 194Q

> Buyer of goods shall deduct TDS @ 0.1% on the payment or credit whichever is early. However, if no PAN is provided by the seller, then the rate will be 5%.

> TDS shall not be deducted for the payment or Credit made before 01.07.2021.

Section 194Q Not Applied in cases of:

(i) Where TDS need to be deducted under any other section then, TDS will not be deducted u/s 194Q and that other section will prevail.

Illustration: Suppose in case of Job Work Purchase, TDS is required to be deducted u/s 194C and side by side conditions of section 194Q also fulfils, then, TDS shall be deducted u/s 194C and not under section 194Q.

(ii) Where TCS charged by the Seller u/s 206C other than section 260C(1H)

Illustration: Suppose we purchased a motor vehicle for Rs. 70 Lac and TCS charged by the Dealer u/s 206C(1F), then no TDS shall be deducted u/s 194Q.

(iii) Where Seller also liable to charge TCS on Sale of Goods u/s 206C(1H):

Illustration: If Seller is liable to Collect TCS u/s 206C(1H) and buyer is also required to deduct TDS u/s 194Q on the same goods, in such situation question arises that whether Seller will collect TCS or buyer will deduct TDS? So, it is provided that then TDS provision u/s 194Q shall prevail. i.e., in that case, TDS shall be deducted by the buyer and seller shall not charge any TCS u/s 206C(1H).

Though it sounds simple that if buyer is liable to deduct TDS, then the seller will not be liable to collect TCS, but it is actually not so simple. Here, I would like to draw your kind attention towards the Second Proviso to section 206C(1H) which read as under:

Provided further that the provisions of this subsection 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.

A practical hardship may be seen that a seller who is liable to collect TCS u/s 206C(1H) will now have to confirm that whether the buyer is liable to deduct TDS u/s 194Q or not, and if he is so liable then whether the buyer actually deducted TDS or not.

Suppose, in the above case the buyer though liable to deduct the TDS but not deducted, then, whether the seller will be deemed to be defaulter u/s 206C(1H) for the default made by the buyer.

You will see that in the above said second proviso to section 206C(1H), relaxation to the seller from charging TCS from the buyer is available only when the buyer is liable to deduct TDS, “AND HAS DEDUCTED SUCH AMOUNT”.

But Suppose the buyer has not deducted TDS then whether Seller can be held guilty for not charging the TCS? On this position, clarity is awaited from the govt. Otherwise, section 194Q is easy to implement.

Provisions Illustrated:

Buyer T/o in 2020-21 T/o in 2021-22 Purchase or Payment from 01.04.2021 to 30.06.2021 Purchase or payment from 01.07.2021 to 31.03.2022 Requirement for TDS u/s 194Q
Mr. X 12 Crore 8 Crore 40 Lac 60Lac TDS @ 0.1% on 50 Lac (Note)
Mr. X 10 Crore 25 Crore 70 Lac 90 Lac No TDS Required as in last year T/o not exceeded Rs. 10 Crore
Mr. X 20 Crore 35 Core 80 Lac 10 Lac TDS @ 0.1% on 10 Lac
Mr. X 20 Crore 40 Crore 10 Lac 55 Lac TDS @ 0.1% on 15 Lac
Mr. X 20 Crore 50 Crore 65 Lac 80 Lac TDS @0.1% on 80 Lac

Note: – Purchase or payment made before 01.07.2021 shall not be considered for TDS deduction, however, it will be considered for checking the limit of Rs. 50 Lac in a year. So, purchases made up to 30.06.2021 shall not be liable to TDS and out of 60 Lac

Dear readers your valuable views/comment are invited for a healthy discussion so that it be implemented with utmost clarity in the real world.

Author Bio

Qualification: CA in Practice
Company: N G R & Associates
Location: FARIDABAD, Haryana, IN
Member Since: 10 May 2020 | Total Posts: 12
Nishant Singla is Fellow Member of Institute of Chartered Accountants of India (ICAI) M. No. 536056 . He has completed his Chartered Accountant Course in the Year 2014; he has also completed Certificate Course of Valuation of Shares conducted by ICAI in the year 2015 View Full Profile

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5 Comments

  1. KARTHIK R says:

    The section talks about purchase in “any previous year”, so can we infer that if purchase from a seller crosses 50 lac in any one previous year, the section would apply for all the future purchases?

    1. nishanttax says:

      It is for one year, we have to look this limit every year as we are seeing in case of Section 206C(1H),, there also same wording used.

  2. Vivek says:

    In the last example is TDS @0.1% on 95 lakhs ??
    65+80lakhs = 145 lakhs – 50 lakhs = Rs. 95 lakhs

    Why is it mentioned as TDS @0.1% on “80 Lac”

    Thanks

    1. nishanttax says:

      Tds will be on 80 Lac, as this section not applicable on the credits or payments made before 01.07.2021.. Suppose even we have purchased Rs. 2 Crore material up to 30.06.2021 and thereafter from 01.07.2021 to 31.03.2022 buys for only Rs. 10 Lac, then TDS will be applicable on the purchases made after 01.070.2021 i.e. only on Rs. 10 Lac

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