TDS on Purchase of Goods(Section 194Q) & Comparison with Section 206C(1H) TCS on Sale of Goods

TDS on Purchase of goods under section 194Q

TDS on purchase of goods is required to be deducted as explained under section 194Q. Finance Act 2021 introduce section 194Q with effect from the 1st day of July, 2021.

Who is responsible to deduct TDS on Purchase of Goods ?

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 (Rupees 50 Lakhs) in any previous year.

Example:

  1. Ram (Buyer) Purchase goods from shyam (Seller) of value 51 Lakh. so in this case Ram (Buyer) is Responsible to deduct TDS as value of supply is exceeding 50 Lakhs.
  2. Ram (Buyer) Purchase goods from shyam (Seller) of value 40 Lakh. so in this case Ram (Buyer) is not Responsible to deduct TDS as value of supply is not exceeding 50 Lakhs.
  3. Ram (Buyer) Purchase goods from shyam (Seller) of value 50 Lakh. so in this case Ram (Buyer) is not Responsible to deduct TDS as value of supply is not exceeding 50 Lakhs.

When to deduct TDS on Purchase of Goods ?

 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 (5% in No PAN/Aadhar cases-Sec 206AA) of such sum exceeding fifty lakh rupees as income-tax.

Where any sum referred above 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.

Example:

  1. Ram (Buyer) Purchase goods from shyam (Seller) of value 51 Lakh. so in this case Ram (Buyer) is Responsible to deduct TDS as value of supply is exceeding 50 Lakhs. TDS is required to be deducted on sum exceeding 50 lakhs so in this case it is required to deduct TDS on 1 lakhs only at the rate of 0.1% i.e 100 rupees.
  2. Ram (Buyer) Purchase goods from shyam (Seller) of value 60 Lakh. so in this case Ram (Buyer) is Responsible to deduct TDS as value of supply is exceeding 50 Lakhs. TDS is required to be deducted on sum exceeding 50 lakhs so in this case it is required to deduct TDS on 10 lakhs only at the rate of 0.1% i.e 1000 rupees.

Provisions of this section are applicable with effect from the 1st day of July, 2021

  • Ram (Buyer) Purchase goods from shyam (Seller) of value 40 Lakhs between 1st April,21 to 30th June,21. Further he purchase goods  of value 20 lakhs after 1st July,21. Total Sale during year is 60 Lakhs. so in this case Ram (Buyer) is Responsible to deduct TDS as value of supply is exceeding 50 Lakhs. TDS is required to be deducted on sum exceeding 50 lakhs so in this case it is required to deduct TDS on 10 lakhs only at the rate of 0.1% i.e 1000 rupees.

Explanation.—For the purposes of 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(10 Cr.) 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.

Example:

  1. Ram (Buyer) Purchase goods from shyam (Seller) of value 51 Lakh in FY 21-22. Total sales or gross receipts or turnover (Both Goods & services) from the business carried on by him in FY 20-21 is 11 Cr. so in this case Ram (Buyer) is Responsible to deduct TDS as value of supply is exceeding 50 Lakhs . also total sales, gross receipts or turnover (Both Goods & services)  from the business carried on by him exceed ten crore rupees(10 Cr.) during the financial year
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    immediately preceding the financial year in which the purchase of goods is carried out. TDS is required to be deducted on sum exceeding 50 lakhs so in this case it is required to deduct TDS on 1 lakhs only at the rate of 0.1% i.e 100 rupees.
  • Ram (Buyer) Purchase goods from shyam (Seller) of value 51 Lakh in FY 21-22. Total sales or gross receipts or turnover (Both Goods & services) from the business carried on by him in FY 20-21 is 9 Cr. so in this case Ram (Buyer) is not Responsible to deduct TDS as value of supply as total sales, gross receipts or turnover (Both Goods & services) from the business carried on by him does not exceed ten crore rupees(10 Cr.) during the financial year immediately preceding the financial year in which the purchase of goods is carried out. TDS is not required to be deducted on sum exceeding 50 lakhs.

Note:

1.TDS is required to be deducted on value excluding GST amount.

2.If PAN Not available then TDS rate is 5%(Sec206AA).

      If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.

The provisions of this section 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 section 206C(1H) applies.

Note:

1.The seller covered by section 206C(1H) would collect 0.1% (w.e.f.01.10.2020) and the buyer would deduct 0.1% w.e.f. 01.07.2021;

2.If on a transaction TCS is required under section 206C(1H) as well as TDS under section 194Q,then in respect of that transaction only TDS under section 194Q shall only be carried out(Finance Bill Memorandum)

Summary of TDS on Purchase of Goods:

Conditions to be satisfied for applicability of this section are:-

1. Goods must be purchase from a resident. Section is Not applicable on Import of Goods.

2. Goods are purchased for a value or aggregate of value exceeding Rs.50 lakhs in any previous year.

3. The turnover of the purchaser shall be more than INR 10 crores in the preceding Financial year. (i.e. to check the applicability of provisions of Section 194Q for FY 2021-22, turnover of the purchaser during FY 2020-21 shall be more than INR 10 Crores.

4. TDS has not been deducted under any other provisions of the Income Tax Act 1961.

Section 194Q & Section 206C(1H)

Basis of DistinctionTDS on purchase of goods (Section 194Q)TCS on Sale of Goods (Section 206C(1H)
Who is liable for deduction / collectionBuyer is liable to deduct taxSeller is liable to collect the tax
Turnover Limit of deductor / collectorTotal Sales / Turnover / Gross Receipts from business in immediately preceding PY should exceed INR 10 crores of buyerTotal Sales / Turnover / Gross Receipts from business in immediately preceding PY should exceed INR 10 crores of seller
Threshold for purchase/ saleRs.50 lakhsRs.50 lakhs
Rate0.1% (If PAN not furnished by seller then 5%)0.1% (If PAN or AADHAR not furnished by buyer then 1%)
Amount on which tax to be deducted or collectedOn the amount of purchase in excess of Rs.50 lakhsOn the amount of sale consideration in excess of Rs.50 lakhs
Time of collection/ deductionAt the time of payment or credit whichever is earlierAt the time of receipt
Applicable from1st July 20211st Oct 2020
Due Date of payment7th day of subsequent month, For March-30thApril7th day of subsequent month
Return to filedForm 26QForm 27EQ
TDS certificate to issueForm no.16AForm 27D
Consequences of defaultSimple interest @ 1% or 1.5% Disallowance to the extent of 30% under section 40a(i)Simple interest @ 1% or 1.5%
PreferenceFirstSecond
TDS on Purchase of Goods

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