TDS on purchase of Goods : Section 194Q

CA. Ajay Khandelwal

हिंदी में पढ़ने के लिए क्लिक करें

New Section 194Q has been inserted by Finance Act, 2021 to provide for TDS on purchase of goods. TCS on sale of goods is governed by Section 206C(1H). But, this section 194Q deals only with purchase of goods.

Applicable to Buyers only

This new provision is applicable to only those buyers whose gross turnover or gross receipts or sales in previous year was more than Rs. 10 Crores. So, if a buyer has purchased goods from a single seller for an amount exceeding Rs. 50 lacs, then he has to deduct TDS from such seller. TDS is to be deducted at the time of payment or credit whichever is earlier.

Rate of TDS

Rate of TDS in this section is 0.10% on the amount in excess of Rs. 50 lacs. So, upto Rs. 50 lacs, no TDS is required to be deducted under this section. However, if the seller doesn’t provide PAN no, then 5% TDS rate will be applicable.

Date from which applicable

This provision of TDS on purchase of goods is applicable from 1st July, 2021. But, for counting the threshold of Rs. 50 lacs, purchase from 01.04.2021 to 30.06.2021 will also be counted.

For example, if Mr. A whose turnover exceeded Rs. 10 Crore in 2020-21, purchased goods of Rs. 40 lacs upto 30.06.2021 from Mr. X. Now, if he purchases goods of Rs. 20 lacs in July 2021, then TDS @ 0.10% will be deducted on Rs. 10 lacs, i.e., on balance after Rs. 50 lacs. Similarly, if he purchased goods of Rs. 1 Crore from PQR Ltd. upto 30.06.2021 and of Rs. 30 lacs in July, 2021, then he has to deduct TDS on Rs. 30 lacs only. This is because, the provision is applicable from 1st July, 2021. However, the purchase before 1, July, 2021 will be counted for the threshold limit of Rs. 50 lacs because TDS is applicable after Rs. 50 lacs.

If both TDS and TCS are applicable

If there is such a transaction in which both TDS under above provisions and TCS under Section 206C(1H) are applicable, then above TDS provision will only prevail. For example, if Mr. A & Mr. B had turnovers exceeding Rs. 10 Crores last year. Now, if Mr. A sells goods of Rs. 1 crore to Mr. B. So, provision of TCS u/s 206C(1H) is applicable on seller Mr. A and provision of above Section 194Q is applicable to Mr. B. In such case, both are not required to deduct TDS and TCS. Instead, only Mr. B, the buyer is required to deduct TDS under this section.

Non-applicability of above provisions

In addition to above explanation, this Section 194Q of TDS is not applicable in following cases :

  • Purchase of services not involving any goods.
  • Purchase from non-resident seller, as in case of import.
  • When TDS is already required under any other provision of Income Tax Act
  • When TCS is already required under any other provision of Income Tax Act, except Section 206C(1H). For example, if Mr. A & Mr. B have turnover exceeding Rs. 10 Crore. Now, if Mr. A sells scrap of Rs. 1 Crore to Mr. B. So, here Mr. B will not deduct TDS u/s 194Q. Rather, Mr. A will collect TCS because scrap sale is already covered under TCS provisions.
  • Transactions in shares, securities and commodities, which are traded through recognized stock exchanges.
  • If goods are purchased from a seller who is exempt from income tax.

Is TDS deduction required on GST Part

Like other provisions of TDS, there is no requirement of deduction of TDS on GST part of invoice, if GST is shown separately. So, TDS is to be deducted on amount excluding GST. But, if advance is given before billing and TDS is required to be deducted, then it will be deducted on whole amount as separate GST amount is not there before billing.

Effect of Purchase Return

If there is purchase return, and goods are replaced, there is obviously no need of adjustment. But, if amount is refunded, the TDS already deducted may be adjusted against next purchases.

Consequences of Non-deduction of TDS

If TDS, as required under above provisions, is not deducted by buyer on any purchase, then 30% of such purchase will not be allowed as expenditure. This will drastically increase the taxable income and resulting tax liability.

To read our article on TCS on sale of Goods u/s 206C(1H), Click Here

To read other articles on Income Tax, click here

Disclaimer : The above post has been prepared to share the scope and implications of Section 194Q of the Income Tax Act, 1961 and related provisions. Though every effort has been made to avoid errors or omissions in this document yet any error or omission may creep in. Therefore, it is notified that I shall not be responsible for any damage or loss to any one, of any kind, in any manner therefrom. I shall also not be liable or responsible for any loss or damage to any one in any matter due to difference of opinion or interpretation in respect of the text. On the contrary it is suggested that to avoid any doubt the user should cross check the law and the contents with the notified / gazetted materials.
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