prpri TDS on Purchases- Section 194Q TDS on Purchases- Section 194Q

It is for the very first time that purchases are proposed to be subject to TDS, the provisions of TDS on purchases were recently introduced vide the Finance Act, 2021 through the insertion of section 194Q.

TDS on purchases is similar to other TDS provisions, except for the fact that the rate of TDS is quite low and there are some conditions provided in the provisions which need to be satisfied for deduction of TDS. The provisions of TDS on purchases as prescribed under section 194Q are proposed to be effective from July 1, 2021.

The provisions of TDS on purchases are discussed in detail below:

Criteria for applicability of TDS provisions on purchases.

The provisions of TDS are applicable only where the below-listed criteria are satisfied:

  • The seller or the person from whom purchases are being made is resident
  • Gross receipts or Turnover of the buyer in immediately preceding the financial year should be more than INR 10Cr.
  • Value or aggregate of purchases from a supplier or payment whichever is earlier exceed INR 50 Lakhs during the current financial year

Rate of TDS to be deducted.

The rate of TDS should be at the rate of 0.10%, and in case where the seller does not provide Pan the rate of TDS will be 5%.

Amount on which TDS is required to be deducted.

Though deducting TDS on gross amount (i.e., amount including GST) is not in violation of any law, but it might result in cash flow difficulties for the seller. There’s no such clarification on the amount on which TDS is required to be deducted under section 194Q, but as we do in other sections of TDS, the TDS under section 194Q shall also be deducted on basic amount or taxable amount.

Further, in respect of section 206(1H), CBDT vide circular no. 17, dated 20.09.20, clarified that no adjustment on account of GST shall be made for TCS, therefore one may also consider the same circular for TDS deduction and can deduct TDS on gross amount including GST.

Will provisions of section 194Q (TDS on purchases) override section 206(1H) (TCS on sales).

The provisions of TDS on purchases will prevail over TCS on sales. The buyer shall have the primary and foremost obligation to deduct the tax and no tax shall be collected on such transaction under Section 206C(1H).

Time when the TDS needs to be deducted.

Section 194Q of Income Tax Act, 1961 provides for deduction of TDS 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. Therefore, it can easily be concluded that TDS provisions will get attracted at the occurrence of either payment or provisions even if payment is made post purchases.

Calculation of Limit of INR 50 Lakhs for checking applicability of provisions of 194Q.

Considering the clarification provided by CBDT in year 2020 in case of TCS provisions, it can be concluded that the limit of INR 50 lakhs shall be calculated from 1st April 2020.

Whether transactions in immovable property is covered under section 194Q.

Goods simply means every kind of movable property; therefore, the immovable property shall not be treated as goods. Therefore, no TDS shall be deducted under section 194Q in case of transactions in immovable property.

Due date of payment of TDS and frequency of return filing.

The TDS deducted in a month shall be deposited by 7th of next month, in case of March the due date is 30th April.

If deductor fails to deduct tax at source, he shall be liable to pay interest at the rate of 1% for every month or part thereof on the amount of tax he failed to deduct. However, if he fails to deposit the tax deducted at source, he shall be liable to pay interest at the rate of 1.5% for every month or part thereof on the amount of tax he failed to deposit to the credit of the Central Govt.

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