SECTION 194Q OF INCOME TAX ACT FOR TDS ON PAYMENT FOR PURCHASE OF GOODS FROM 01.07.2021
–01 Jul, 2021BE AWARE OF THE NEW TDS COMPLIANCE WHILE MAKING PAYMENT TO YOUR VENDOR BECAUSE FIRST TIME IN THE HISTORY OF INCOME TAX TO LEVY TDS ON GOODS, TILL NOW WE HAVE TDS ON VARIOUS SERVICES ONLY.
1. HISTORY & OBJECTIVE OF SECTION 194Q:
The Government of India in their budget 2021-2022 have introduced a new TDS (Tax deducted at source) on payment for purchase of goods exceeding the value Rs. 50 Lakh, which will effective from 1st July, 2021.
The main reason of introduction of section 194Q TDS provision by the income tax department is to cover up loophole in newly inserted TCS Provision i.e. Section 206C (1H) which came into force from 1st October, 2020 and which was applicable for seller.
2. Description of Section 194Q TDS Provision:
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Clause 48 of Finance Act 2021 For section 194Q of the Income-tax Act, the following section shall be inserted with effect from the 1st day of July, 2021, namely “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” Who is buyer: A per section 194Q, tax is deductible by the buyer of the Goods, Buyer means a person whose total sales, gross receipts or turnover from the business carried out on by him Rs. 10 Crore During the financial year immediately preceding financial year in which the purchase of goods carried out. However, “buyer” does not include a person notified by the central government (Subject to such condition as may be specified therein). Who is Liable for Tax Deduction: Any person (being a buyer) Who is responsible for paying any some to any resident seller for purchase of any goods of the value (or aggregate of such value) exceeding Rs. 50 Lakh in any previous year, Age required to deduct Tax under section 194Q With effect from 1st July, 2021. Time of Tax deductibility: Tax should be detected by the buyer, 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. Where, the above sum credit 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 will apply accordingly. TDS Rate: Tax is deductible my buyer at the rate of 0.1 % of the amount paid and payable Exceeding Rs. 50 lakh (in no Pan cases, Tax is deductible at the rate of 5 per cent) Threshold limit: Threshold limit is Rs. 50 Lakh |
In the following situation tax is not deductible under section 194Q:
Situation 1: If tax is deductible under any other section
Comments: If tax is deductible under any other section, then tax shall be deducted under that section and not under section 194Q. Even when tax is deductible under any other section (but not actually directed by the payer), TDS provisions of that section will apply and not TDS under section 194Q.
Situation 2: If tax is collectible under the provision of section 206C [but other than sub-section (1H)]
Comments: If a particular transaction is covered by TCS provisions section 206C [Other than subsection (1H)], Then tax will be collected by the seller (and tax is not deductable by the buyer under section 194Q).
If a particular transaction is covered by section 194Q as well as section 206C (1H), Then TDS under section 194Q will apply and not TCS under section 206C (1H).
A few cases of section 194Q Transactions:
Case1: If Turnover of Buyer is more than 10 crore in preceding financial year and turnover of Seller is also more than 10 crore.
Answer: In this situation “TDS” to be deducted by “Buyer” Purchase/payment exceeds 50 Lacs in a previous year.
Case2: If Turnover of Buyer is more than 10 crore in preceding financial year and turnover of Seller is less than 10 crore.
Answer: In this situation “TDS” to be deducted by “Buyer” Purchase/payment exceeds 50 Lacs in a previous year.
Case3: If Turnover of Buyer is less than 10 crore in preceding financial year and turnover of Seller is more than 10 crore.
Answer: In this situation “TCS” to be collected by “Seller” if receipts exceeds 50 Lacs in a previous year.
Case4: If Turnover of Buyer is less than 10 crore in preceding financial year and turnover of Seller is also less than 10 crore.
Answer: In this situation “No TDS/TCS” to be deducted/collected by “Buyer/Seller”.
A few Practical Frequently Asked Questions (FAQ) in relation to section 194Q Transactions or 206C(1H):
Question 1: Whether TDS to be deducted on the amount inclusive of GST Component?
Answer: No, since CBDT vide circular No. 13/2021, dated 30th June, 2021, has clarified that “wherever in terms of the agreement or contract between the buyer & seller, the GST comprised in the amount payable to the seller is indicated separately, TDS u/s 194Q shall be deducted on the amount credited without including GST. GST for these purpose shall include IGST, CGST and SGST/UGST.
Question 2: Whether TDS/TCS shall be deducted/collected on any kind of Sales including sale of Services?
Answer: No, as per section 194Q and 206C(1H), TDS/TCS shall be deducted/ collected on sale of goods only.
Question 3: Whether the provisions of Section 194Q shall be applicable on non-resident buyer of goods?
Answer: CBDT vide their circular no. 13/2021, dated 30th June, 2021 has clarified that provision of Section 194Q shall not apply to a non-resident whose purchase of goods from seller in India is not effectively connected with the permanent establishment of such non-resident.
Question 4: Whether the provisions of Section 194Q shall be applicable when seller is a person whose income is exempt?
Answer: CBDT vide their circular no. 13/2021, dated 30th June, 2021 has clarified that provision of Section 194Q shall apply to a seller whose income is exempt, however, further clarified in this regard that the provision of section 194Q/206C(1H) shall not apply on purchase of goods/sale of goods from a person being seller/person being buyer, who as a person is exempt from income tax under act (like person exempt under section 10, RBI Act, ADB Act etc.) non-resident whose purchase of goods from seller in India is not effectively connected with the permanent establishment of such non-resident.
Question 5: Whether the provisions of Section 194Q shall be applicable upon advance payment for goods?
Answer: Yes, CBDT vide their circular no. 13/2021, dated 30th June, 2021 has clarified that provision of Section 194Q shall apply to advance payment made by the buyer. Since section 194Q apply on payment or credit whichever is earlier.
Question 6: Whether the provisions of Section 194Q shall be applicable upon purchase of capital goods?
Answer: Yes, section 194Q & 206C(1H) applies to purchase or sale of all goods whether on capital or on revenue account.
Question 7: Whether tax to be deducted on the purchase of goods by one branch from another branch?
Answer: No, The TDS under this section is required to be deducted by any person, being a buyer, responsible for making payment to the seller for the purchase of goods. Thus, the existence of two distinct parties as ‘seller’ and ‘buyer’ is a pre-requisite to construe a transaction as a purchase. The condition of purchase is not fulfilled in the context of branch transfer. Therefore, the provisions of this section shall not apply in the case of branch transfers.
Question 8: Whether purchase made from different units needs to be aggregated, if seller has multiple units?
Answer: Yes if seller Pan or Aadhaar number is available and different unit of seller are under Same PAN/Aadhaar number then the threshold limit of Rs. 50 lakhs shall be computed in respect of this PAN or Aadhaar number.
