TDS on Purchase of Goods

www.carajput.com; TDS NEW SECTION 194Q

TDS on Purchase of Goods (Budget 2021)

Govt introduced new TDS Section 194Q effective from 01-July-2021, which states that any person who is a buyer, liable to pay any sum to any resident (hereinafter referred to as the seller in this section) for the purchase of any goods of a value or aggregate of that value in excess of 50 lakh rupees in any previous year shall,  pay such amount to the account at the time of credit or at the time of payment thereafter by any mode, whichever is earlier, deduct an amount equal to 0.1 percent of such an amount exceeding INR 50 lakh rupees as income tax.

Section 194Q(TDS on Purchase of Goods) provides for the deduction at the source of tax on the payment made to the purchase of goods by the assessee. It is similar to section 206C (1H), which is applicable to TSC.

Basic of the provision of Tax deduction at source on Purchase of Goods (U/s 194Q):

• It is applicable to a resident buyer for purchase goods of a value or Total Value exceeding Rs.50 lakhs in any previous year.
• The assessee shall deduct an amount equal to 0.1% of such amount in excess of Rs.50 lakhs by way of income tax at the time of credit of such sum to the seller’s account or at the time of payment whichever is earlier (covers advance payment).
• The buyer would refer to an individual whose overall sales, gross receipts or turnover from business undertaken by the buyer exceeded Rs.10 crores in the financial year preceding the financial year in which the goods were purchased.
• The term ‘buyer’ would not include any individual as prescribed by the Central Government by notification in the Official Gazette.
• Any amount credited to the suspense account or by any other name in the account books of the individual liable to pay the sum (read as the buyer) is covered and the credit would be deemed to be credited to the payee’s account and the provision will then apply.
• The Memorandum specifying the provisions of the Finance Bill 2021 clarifies that if a transaction involves TCS compliance with section 206C(1H) and TDS defined under section 194Q, then only TDS according to section 194Q will be carried out in respect of that transaction.
• The rate of Tax Deducted at Source will be 0.1% (5% if PAN not provided)
• This provision will be implemented from 1st July 2021.

The provisions of TDS on Purchase of Goods (Section 194Q) shall not apply to the following transactions:

Tax is deductible at source under any other provision of this Act

In the case that a transaction is already subject to TDS under any of the existing provisions relating to TDS, then in case the buyer shall deduct TDS under the respective provisions relating to TDS and shall not deduct TDS under section 194Q.

Tax is collectible in compliance with the provisions of section 206C apart from the transaction to which section 206C (1H) applies. In other terms, 0.1 % will be collected by the seller covered by Section 206C (1H) (w.e.f. 01.04.2021) and the buyer would deduct 0.1 % w.e.f. 01.07.2021.

Let us assume that a transaction is already subject to TCS u/s 206C, e.g. in the case of motor vehicle sales above 10 lakh, Section 206C (1F) already requires the seller of the motor vehicle to collect source tax.

Section 194Q will also not be applicable to the consumer in such a case, since that transaction is already covered by provisions 206C of Section other than 206C (1H). Here, therefore, the buyer will not be required to deduct TDS u/s 194Q of the Income-tax Act.;

In case, the transaction is already covered by the provisions of Section 206C (1H), then on a plain reading of section, it appears that the seller will collect TCS u/s 206C(1H) of the Act and the buyer would deduct all TDS u/s 194Q of the Act   However, clarity or guidelines on this subject should be given by the Board in order to avoid conflicting interpretations.

Reduced in Tax Deducted at Source Rate under section 194Q in the absence of PAN [additional proviso to section 206AA (1)] :

If the person entitled to obtain any sum or income for which tax is deductible under Chapter XVII-B fails to send the Permanent Account Number to the person responsible of deducting tax at source, the person in charge of payment shall deduct tax at source at a higher rate than to the following rates, i.e.

• the rate applicable to in the relevant provision of this Act; or
• either at the rate or rates in force; or
• At the 20% rate.

In order to introduce Tax Deducted at Source on Purchase of Goods in the Finance Bill, 2021, proposes to insert section 194Q w.e.f. 01.07.2021.

If his PAN is not issued by the supplier of goods referred to in section 194Q, then the buyer must deduct tax at source @ 5 % instead of 20 % above. This is required to be effective from 1 July 2021 by incorporating a further provision to section 206AA.

Is Tax Deducted at Source U/s 194Q be deducted on Goods and Services Tax amount also?

Because of Purchaser is needed to deduct the Tax Deducted at Source U/s 194-Q on amount of Purchases but while paying to the supplier payment of Goods and Services Tax is also needed to be made. As per our recommendations, like in other transactions covered U/s 194C we usually deduct TDS on Basic amount only, here too deduction of Tax Deducted at Source be made on net amount only & Goods and Services Tax amount is paid in full while making the payment to the supplier. Suitable changes to the respective ERP’s/softwares may be customised to take care of these provisions.

Consequences where the provisions of U/s 194Q are not in compliance with

The effects of the various non-compliances related to U/s 194Q as mentioned are very vital:

• If the seller does not have a permanent account number then the applicable Tax Deducted at Source will be 5% of the Purchase Transaction/Payment of the Purchase transaction.
• If the Purchaser fails to deduct Tax Deducted at Source as applicable, Section 40A(IA)of the income Tax would provide that the value of Purchase transactions for which Source Tax Deductible is not deducted will be subject to 30 percent disallowance, which means that even Purchases supported by Bills or GR’s may be disallowed to 30 percent of the value of the transaction if Tax Deducted at Source.

Why Section 194-Q needed by Law?

The hidden agenda behind the Govt in Order to implement this section, it seems quite clear that there is a change where few large numbers of transactions are being tracked without any trace where GST amounts are being misused.

The governor. It intends to bring all such purchase transactions under some audit trail so that fake or frivolous transactions can be tracked or monitored under the TDS regulations and verified in the future, if necessary.

Although it is noted that this has been enacted, both sections on a single transaction may be applicable and will involve complexities of compliance for the assessee covered by such transactions. It is, therefore, suggested that be implemented either of the two provisions, i.e. Section 206 C (1H) or Section 194 Q,.

Ask my friends to confirm the relevance of the regulations adequately and to take more such care of the implementation……

Example of Tax Deducted at Source be calculated U/s 194Q:

The following example tries to explain how TDS will be determined if Mr. ABC purchases goods worth Rs 1 Crore for his commercial enterprise. ABC may, from the very outset, track purchases from each supplier to determine that, as soon as the purchase exceeds INR 50,00,000/-, Tax Deducted at Source will be deducted at 0.10 percent of the purchase transaction or payment thereof. In the above case, the first 50,00,000/- of purchase shall be excluding Tax Deducted at Source & the remainder of Rs50 Lakes Tax Deducted at Source referred to in U/s 194-Q shall be deducted, i.e. It’s INR 5000/-. For the remainder of all transactions during the year, Tax Deducted at Source will be deducted from each purchase transaction.

Illustration:

Seller Turn-over (In Crore)	Buyer Turn-over (In Crore)	Receipt or Payment for sale  or purchase of Goods in the previous year (In Lakhs)	Amt. on which tax will be calculated	Seller PAN	Buyer PAN	TDS	TCS	Liable Person	Section under Income Tax Act	Exclusion Section	Reason
9	12	54	4	Available	N/A	Yes @0.1%	N/A	Buyer	194Q	Out of scope of Sec 206C (1H)	Seller Turnover less than 10 Cr.
14	8	57	7	N/A	Available	N/A	Yes @0.1%	Seller	206C(1H)	Out of scope of Sec 194Q	Buyer  Turnover less than 10 Cr.
13	14	62	12	Available	Available	Yes @0.1%	N/A	Buyer	194Q	Out of scope of Sec 206C (1H)	Exclusion Provided under Sec 206C(1H)
9	12	54	4	N/A	N/A	Yes @5%	N/A	Buyer	194Q/ 206AA	Out of scope of Sec 206C (1H)	Seller Turnover less than 10 Cr.
14	8	57	7	N/A	N/A	N/A	Yes @1%	Seller	206C(1H) / 206AA	Out of scope of Sec 194Q	Buyer  Turnover less than 10 Cr.

Reason for the introduction of New TDS provision- TDS on Purchase of Goods

• During the Current FY, the Govt introduced TCS provision for Seller on Receipt of Sales of Goods last year, more than INR 50 Lakhs as sale consideration. The TCS is payable on the amount of receipt that is greater than INR 50 Lakhs and received after the 1st of Oct. 2020. The TCS rate is 0.1 % and the TCS pandemic rate decreases by 25 % until 31 March 2021 due to COVID-19 and its effective rate is 0.075%.
• Another applicability for the condition was “Buyer” whose gross receipts, total sales,  or turnover of the business carried along by him exceeds 10 crore rupees during the financial year immediately preceding the financial year in which the sale of the goods takes place.

There have been cases where Seller Turnover is less than 10 Crore, but his receipt exceeds Rs.50 Lakhs from sales of products to specific buyers. Accordingly, TCS was not responsible for the seller. The government comes up with a similar form of provision for Buyer via TDS applicability to manage this situation.

Conclusion: U/s 194-Q -Tax Deducted at Source @ 0.10% shall be applicable on Total Purchases over & above INR 50,00,000/- from a Supplier in India in an FY.