PROVISION RELATING TO TDS ON PURCHASE OF GOODS - 194Q
The Finance Act, 2020, inserted Sub-Section (1H) in Section 206C to provide for the collection of tax by a seller from the amount received as consideration for the sale of goods if it exceeds Rs. 50 lakhs in any previous year. On the similar lines, the Finance Bill, 2021, proposes to insert a new Section 194Q to provide for deduction of tax by a buyer from the purchase of goods. As sale and purchase are the flip-side of a transaction, the applicability of two provisions on the same transaction may create a lot of doubts. To resolve all these doubts we have prepared a list of the Frequently Asked Questions (FAQs) about the requirement to deduct TDS on purchase of goods with effect from 01-07-2021 with a distinction between the new Section 194Q and Section 206C(1H).
FAQ 1. Who is liable to deduct tax under Section 194Q?
The tax shall be deducted under Section 194Q by 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. This provision shall be applicable from 01-07-2021.
Thus, the liability to deduct tax under this provision in the financial year 2021-22 shall arise if the turnover of the purchaser was more than Rs. 10 crores in the financial year 2020-21.
FAQ 2. When tax shall be deducted under this provision?
The tax shall be deducted from the purchases made by a buyer if the following conditions are satisfied:
(a) There is a purchase of goods from a resident person;
(b) Goods are purchased for a value or aggregate of value exceeding Rs. 50 lakhs in any previous year; and
(c) The buyer should not be in the list of persons excluded from the provision for deduction of tax.
The tax shall not be deducted under this provision if the tax is deductible or collectible under any other provision except Section 206C(1H).
Thus, if a transaction is subject to TCS under Section 206C(1H), the buyer shall have the first obligation to deduct the tax. If he does so, the seller will not have any obligation to collect the tax under Section 206C(1H). Also, refer to FAQ 5.
FAQ 3. What shall be the timing of deduction of tax?
Tax is required to be deducted 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. The tax shall be deducted even if the sum is credited to the 'Suspense Account'.
FAQ 4. At what rate tax is to be deducted?
The tax shall be deducted by the buyer of goods at the rate of 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%.
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