Article explains Concept Of TDS Under Section 194Q, 11 Rules for Deduction of TDS under Section 194Q, Examples on TDS under Section 194Q, Practical Difficulty Faced in Deduction of TDS under Section 194Q and Authors Comment on deduction of TDS under Section 194Q.

Concept of TDS Under Section 194Q

Budget 2021 introduced section 194Q which require purchase of goods to deduct TDS @ 0.1% if he purchases goods above Rs.50lakhs in a year.

♦ 11 Rules For Deduction of TDS Under Section 194Q

Following conditions should be satisfied to deduct TDS-

1. Turnover of buyer should be more than 10Cr. in last P.Y.

2. TDS is not required to be deducted if TDS/TCS deducted/collected under any other section except newly inserted Section 206C(1H).

3. It is clarified that if on a transaction TCS is required u/s 206C(1H) as well as TDS under this section, then on that transaction only TDS under this section shall be carried out. It means if a transaction is subject to TCS u/s 206C(1H) then buyer shall have first obligation to deduct tax. If he does so seller will not have any obligation to collect tax u/s 206C(1H). Seller shall be liable to collect tax only if purchaser is not liable to deduct tax or purchaser failed to deduct tax.

4. It is effective from 1st July 2021.

5. TDS shall be deducted on remaining amount of purchase after 50lacs.

6. TDS will be deducted on the date of purchase transaction or payment whichever is earlier.

7. TDS should be deducted on net purchase amount without GST.

8. If seller is not having PAN, then TDS is to be deducted @5%.

9. TDS is not to be deducted on purchase of services.

10. TDS shall be deducted on purchases made from India. Import of goods is not liable to TDS.

11. CBDT vide Circular No.17 of 2020 has clarified that sec 206C(1H) is not applicable on securities and commodities traded to stock exchange . Similar logic can be applied u/s 194Q till the date any clarification comes.

Examples On TDS Under Section 194Q

Particulars Scenario 1 Scenario 2 Scenario 3
Turnover of Seller (In cr.) 12 6 12
Turnover of Buyer (In cr.) 6 12 12
Sale of goods (In cr.) 2 2 2
Sales consideration paid during the year (In cr.) 1 1 1
Who is liable to deduct or collect tax? Seller Buyer Buyer
Rate of Tax 0.1% 0.1% 0.1%
Amount on which tax to be deducted or collected (In Cr.) 0.5 1.5 1.5
Tax to be deducted or collected 5000 15000 15000

♦ Practical Difficulty Faced In Deduction of TDS Under Section 194Q

1. If by mistake TDS is not deducted, then 30% of purchase amount shall be disallowed u/s. 40(a)(ia) and will be added to total income.

2. Due to Covid-19, already business houses are facing liquidity crunch. If amount is blocked in TDS/TCS than it may face more liquidity issues.

3. Practical implementation of both the sections 194Q and 206C(1H) is a bigger task. Govt. should liberalize its taxation policies.

♦ Our Comment on deduction of TDS Under Section 194Q

The motive of Govt. to introduce this section is very clear. It wants to bring all big bucket purchase transactions into system to avoid fake invoices under GST and Income-tax thereby bringing all such transactions into audit trail.  It wants to trace all the persons who are purchasing and selling goods above Rs.50lacs and not filing return of income. It wants to build a tax base whereby all the big rocket transactions cannot be evaded. Now it is the time to comply with all the legal compliances keeping in mind that Cost of legal compliances may be Costly but cost of non-compliance is too heavy. Do abide with all the legalities to stay in peace.

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The above comments do not constitute professional advice. The Author can be reached at [email protected] or visit website www.financialtreecompany.com . My name is CA Divya Agrawal and I am Practising Chartered Accountant, CEO and Founder of FINANCIAL TREE COMPANY (An online return filing and Tax Consultancy Company). We also upload educational videos in You tube and name of our channel is FINANCIAL TREE COMPANY. Our aim is to help people in improving their financial health by spreading knowledge and love. Stay Financially Fit and Healthy.

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