Applicability of Section 194Q TDS on Purchase of Goods

Introduction

A new section 194Q introduced In the Budget 2021-22 which will be effective from 1^st July 2021.

In order to widen and deepen the tax base, it is proposed to levy a TDS of 0.1% on purchase transactions exceeding Rs. 50 lakhs in a year. In order to reduce the compliance burden, it is also proposed to provide that the responsibility of deduction shall lie only on the persons whose turnover exceeds Rs. 10 crores.

Who is Liable to Deduct

A buyer carrying on a business whose total sales, gross receipts or turnover from the business exceeds Rs.10 crores during the financial year immediately preceding the financial year in which such goods are purchased.  

When tax liable to be Deducted

The tax shall be deducted from the purchases made by a buyer if the following conditions are satisfied:

1. There is a purchase of goods from a resident person;
2. Goods are purchased for a value or aggregate of value exceeding Rs. 50 lakhs in any previous year; and
3. The buyer should not be in the list of persons excluded from the provision for deduction of tax.

Time of Deduction

(i) At the time of credit of such sum to the account (even if Suspense A/c) of the seller; or

(ii) At the time of payment thereof by any mode

Whichever is earlier.

Rate

0.1% of the purchase value exceeding Rs. 50 lakhs if the seller has furnished his PAN or Aadhaar, otherwise, the tax shall be deducted at the rate of 5%.

Exception

(a) tax is deductible under any of the provisions of this Act; and

(b) tax is collectable (TCS) under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.

TDS u/s 194 Q v/s TCS u/s 206C(1H)

The buyer shall have the primary and foremost obligation to deduct the tax and no tax shall be collected on such transaction under Section 206C(1H). However, if the buyer makes a default, the liability to collect the tax gets shifted to the seller.

Liability for Non-compliance

Dis-allowance to the extent of 30% of the value of transaction. It means that if the buyer fails to deduct and deposit TDS as applicable then dis-allowance shall be restricted to 30% of the amount of expenditure on which TDS is not deducted and deposited. In addition, if deductor fails to deduct tax at source, he shall be liable to pay interest at the rate of 1% for every month or part thereof on the amount of tax he failed to deduct. However, if he fails to deposit the tax deducted at source, he shall be liable to pay interest at the rate of 1.5% for every month or part thereof on the amount of tax he failed to deposit to the credit of the Central Govt.

Action Points

• Procurement Team to Identify vendors having turnover more than 50 Lakhs.
• IT Team to make necessary changes in the software.
• Revision of Open PO’s w.e.f 01-July-21 since TCS would not be applicable.

Conclusion

The word TDS and Tedious sounds similar. Currently, there are 38 provisions which required Tax Deduction at Source from various transactions. If all these provisions collated in a table this has increased the compliance burden at no cost to the Assessee. The intention of section 194Q is to widen and deepen the tax base. However, this purpose would get defeated and add more baggage to the already overcrowded TDS provisions.

The author can also be reached at cavikasrai@gmail.com