SECTION 194Q OF THE INCOME TAX ACT 1961-TDS ON PURCHASE OF GOODS

Any person, being a buyer who is responsible for paying any sum to 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

The key features of the section newly inserted is as: -

Applicability: -The sections is applicable from 1^st of July 2021.

Rate of TDS to be Deducted: - 0.1% on the value exceeding fifty lakh rupees.

(5% in case PAN is not furnished by the seller)

Value on which TDS to be Deducted: -Tax to be deducted on the basic value excluding GST.

Time of Deduction: -Earlier of the following:-

• At the time of credit of sum to any account (including suspense account) or
• At the time of payment by any mode

Conditions for applicability of Section:

The tax obligation will arise if the following conditions are satisfied: -

• The payment is made to a resident seller
• The value or aggregate value of goods exceeds fifty lakhs.
• The person shall fall under the definition of buyer as provided in this section.

For this section Buyer means any person whose total sales, turnover or gross receipts from the business exceeds ten crores during the financial year immediately preceding the financial year in which the purchase of goods is carried out.

No requirement of TDS u/s 194 Q on a transaction: -

• If TDS is deductible under any other provision of this Act and: -
• Tax is collectible under the provision of section 206C (other than 206C(1H))

The government clarified vide circular No 13 of 2021 dated 30^th June 2021 the cross applicability of Section 206C(1H) and section 194Q as under: -

If a transaction is both within the purview of section 194-Q of the Act as well as sub-section (I H) of section 206C of the Act, the tax is required to be deducted under section 194-Q of the Act. The transaction shall come out of the purview of sub-section (1 H) of section 206C of the Act after tax has been deducted by the buyer on that transaction. Once the buyer has deducted the tax on a transaction, the seller is not required to collect the tax under sub-section (I H) of section 206C of the Act on the same transaction. However, if, for any reason, tax has been collected by the seller under sub-section (I H) of section 206C of the Act, before the buyer could deduct tax under section 194-Q of the Act on the same transaction, such transaction would not be subjected to tax deduction again by the buyer. This concession is provided to remove difficulty, since tax rate of deduction and collection are same in section 194Q and subsection (IH) of section 206C of the Act.  

Illustration for better understanding: -

Written By:-

CA NEHAL JAIN

CHARTERED ACCOUNTANT

Expertbells Consulting Private Limited