TDS On Purchase of Goods section 194Q

TDS On Purchase of Goods Under section 194Q

In the finance budget, 2021 Indian finance minister Nirmal Sitaramna introduced a new section TDS section 194Q. this section belongs to TDS on the Purchase of goods.

the idea behind this section 194Q was to increase the collection of advance income tax. TDS section 194Q will effective from 1 July 2021.

now we discuss all provisions of section 194Q and applicability

Clause 48 of Finance Bill 2021- Insertion of new section 194Q:

section 194Q(1) Any person, being a buyer who is responsible for paying any sum to any resident for purchase of any goods of the value or aggregate of such value exceeding 50 lakh rupees in any previous year.

when deducting a TDS and what is the rate?

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. It is proposed to provide for TDS by a person responsible for paying any sum to any resident for the purchase of goods. The rate of TDS is kept very low at 0.1%.

Buyer means

For 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.

which amount is taxable

TDS will be deducted on any sum paid over and above ₹50 Lakh in a financial year. This means TDS is not applicable on the whole amount but rather on any sum exceeding ₹50 Lakh only in a financial year.

for example: if the purchase amount is RS.51,00,000, then Tds is deducted only from RS.,1,00,000. The taxable amount is Rs. 100.

Exception (TDS section 194Q does not apply)

The provision of TDS U/S 194Q does not apply to the following conditions:

This section is not applicable to a person whose TDS is deductible under any other provision of the Act
This section not applicable to a person whose TCS is deductible under any other provision of the Act, other than Sec 206C(1H)

Important points of section 194Q (purchase of goods)

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.
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
Sec 194Q shall override sec 206C(1H) and hence in such a case only the buyer needs to deduct TDS and the seller need not to required deduct TDS under sec 206C(1H)
If the seller does not provide his PAN, in that case, the buyer has to deduct TDS 5% as per the newly amended section 206AA of the Income Tax Act;

for example, Mr. Seller Sold goods to Mr. Buyer and collected TCS under sec 206C(1H), however, after applicability of Sec 194Q (1. July.2021) Mr. Buyer is covered by Sec 194Q. Since sec 194Q is an overriding section hence My Buyer shall be liable to deduct TDS under this section and Mr. Seller shall not require to collect TCS under sec 206C(1H).

CBDT has clarified through Circular No. 23/2017 that if GST on services has been indicated separately in the invoice, then no tax would be deducted on the GST component. However, whether this benefit will be extended to GST on services is need to clarify by the CBDT. Hence will update this point as soon as CBDT issue any notification or circular

194Q TDS V/S 206C(1H) TCS