Tax Deduction At Source (TDS) under Section 194Q of The Income Tax Act, 1961 (effective from 01.07.2021)
To further extend the tax base, the government has introduced a new section 194Q of the Act vide the Finance Act 2021 and made the same effective from 1st July 2021.
Analysis of Section 194 Q
Any person, being a buyer, 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
Note 1: If the seller does not furnish their PAN number to the buyer, then Buyer shall deduct TDS @ 5% in place of 0.1% [2nd Proviso to Section 206AA(1)]
Note 2: TDS shall not be deducted under this section if :
i) TDS is deductible under any of the other provisions of this Act and
ii) if TCS is collectible under the provisions of Section 206C except section 206C(1H).
It may be clarified that if a particular transaction attracts both Section 194Q and Section 206C(1H) by the counter parties, then the buyer shall have the first obligation to deduct tax on the said transaction under section 194Q. If he does so, the seller shall not have any obligation to collect TCS u/s 206C(1H). Seller shall be liable to collect TCS only if buyer is either not liable to deduct TDS or failed to deduct tax under section 194Q.
Note 3: The onus to deduct TDS u/s 194Q is on “Any Person” : means it covers non- resident buyers also.
However, paying any sum to “any resident” : means only resident sellers covered
Note 4: Covers only purchase of “any goods” : means purchase of services not covered here. However, since nothing specifically mentioned, in our opinion, it applies to purchase of both types of goods, i.e. revenue as well as capital goods.
Note 5: Provisions relating to deposition of TDS u/s 194Q, filing of TDS returns and issuance of TDS certificates : same as any other non-salary TDS
Note 6: This section is triggered on purchase of any goods for value IN EXCESS OF Rs.50.0 lakhs in any previous year, i.e. financial year.
Also, in our opinion, such threshold of Rs.50 lakhs to be checked with regard to every financial year. Besides, even though this section is effective from 1st July 2021, the value of purchases effective 1st of April 2021 should be taken into account.
Note 7: In our opinion, TDS should be deducted on purchase consideration which is inclusive of GST since as per section 145A of the Act, the value of purchases should include the amount of any tax actually paid or incurred.
Infact, taking clue on similar lines, for determining liability of the BUYER to deduct TDC under these provisions on basis of his turnover in last financial year, it is prudent to compute his turnover inclusive of GST (though the Govt appears to have missed to clarify on this aspect).
Note 8: If TDS is not deducted, then 30% of purchase amount shall be disallowed u/s 40(a)(ia) and will be added to total income.
Note 9: The extant provision of section 194Q has various interpretational issues, similar to section 206C(1H).
It should be noted that government had issued Circular no. 17 of 2020 dt. 29 September 2020 to address some of the concerns raised by stakeholders in relation to section 206C(1H). While one can adopt a stand that both the sections, section 194Q and section 206C(1H) are similarly worded, clarifications issued in regards to section 206C(1H) vide the circular (supra) may apply to section 194Q. However, such a position may prove litigative.
Note 10: Interplay of section 194Q and 206C(1H) vis-à-vis the turnover condition as prescribed in respective sections:
|Scenario||Turnover of seller||Turnover of buyer||Applicable provisions|
|Scenario 1||More than INR 10 Cr||Less than INR 10 Cr||Section 206C(1H) – TCS to be collected by the seller|
|Scenario 2||Less than INR 10 Cr||More than INR 10 Cr||Section 194Q – TDS to be deducted by the buyer|
|Scenario 3||More than INR 10 Cr||More than INR 10 Cr||In this case, both the sections shall be applicable. Responsibility first on the BUYER and on SELLER if not discharged by BUYER|
Note 11: Comparison of Sec 194Q and 206C(1H) of Income Tax Act, 1961
|Sr||Particulars||Section 194Q||Section 206C(1H)|
|1.||Purpose||Tax to be DEDUCTED||Tax to be COLLECTED|
|2.||Applicable to||Buyer (applies also to non-resident)||Seller (applies also to non-resident)|
|3.||To be deducted/ collected||On payment to Seller (should be resident)||On collection from Buyers (should be resident)|
|4.||With effect from||01.07.2021||01.10.2020|
|5.||When Deducted or collected||Payment or credit, whichever is earlier||At the time of receipt|
|6.||Advances||TDS shall be deducted on advance payments made||TCS shall be collected on advance receipts|
|7.||Rate of TDS/ TCS||0.1% (of amount in excess of Rs.50.0 lakhs)||0.1% (of amount in excess of Rs.50.0 lakhs)|
|8.||Rate, if PAN not avlb||5%||1%|
|9.||Triggering point||Turnover/ Gross Receipts/ Sales from the business of BUYER should exceed Rs.10 Cr during previous FY, and
Purchase of goods of aggregate value exceeding Rs.50 lakhs, during current FY (the value of goods including GST)
|Turnover/ Gross Receipts/ Sales from the business of SELLER should exceed Rs.10 Cr during previous FY, and
Sale consideration received exceeds Rs.50 lakhs during current FY (the value of goods includes GST)
|10.||Exclusions||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
|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|
|11.||When to deposit/collect||Tax so deducted shall be deposited with government by 7th day of subsequent month||Tax so collected shall be deposited with government by 7th day of subsequent month|
|12.||Quarterly statement to be filed||26Q||27EQ|
|13.||Certificate to be issued to seller/buyer||Form 16A||Form 27D|
Disclaimer: The information contained herein is of general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in future. No one should act on such information without appropriate professional advice after thorough examination of the particular situation. We neither accept nor assume any responsibility or liability to any reader of this newsletter in respect of the information contained in it or for any decisions he may take or decide not to or fail to take. No part of this document should be distributed or copied by anyone without our express written permission.