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Section 194Q TDS Applicability on Purchase of Goods

In this communication, we are going to touch base an important change in the Tax Law that is proposed by the Budget and going to impact drastically every business operating in India. This is w.r.t to TDS on Purchase Transaction.

TDS on Purchase Transaction is going to be implemented by 1st July 2021 as proposed by Honb'le Finance Minister Smt. NirmalaSitharaman in her budget speech on 1st Feb 2021. Request you going through the following paras covering the important topic and also simultaneously raising concern since there is already a provision existing to cover TCS on the sale transaction.

TDS under section 194-Q at .10% shall be applicable on aggregate purchase over & above Rs. 50 Lacs from a supplier in India in a financial year.

Salient features of TDS under section 194-Q on Purchase of Goods

  • This new Section 194Q is proposed to be applicable from 1st July 2021.
  • As per charging proviso to this section, this is going to be applicable to any person being a buyer responsible for making a payment to a resident(Not applicable for Import Purchase from supplier outside India) for purchase of goods (NA to services) when value or aggregate of purchase from a supplier or payment whichever is earlier Rs.50 lacs during the previous year. The transaction with any supplier with addition of which your aggregate purchase/payment for purchase from that supplier exceeds Rs.50 lacs, that will be the transaction effective which TDS will have to be deducted @.10% of the Purchase transaction or payment thereof whichever is earlier.
  • This section will also to apply to an assesse whose aggregate Turnover in the immediate previous year exceeds Rs.10 crore.
Sec 194Q   TDS on Purchase of Goods

How TDS under Section 194Q will be calculated?

For Example: Mr. XYZ purchased goods worth Rs.1 Crore for his business.XYZ might to track purchase from each supplier from very beginning to a ascertain soon as purchase exceed Rs.50 Lacs TDS will be deducted @.10% of the purchase transaction or payment thereof. In above case first 50 Lacs of purchase shall be without TDS and rest of Rs. 50 Lacs under section 194Q will be deducted i.e. Rs.5000 (Rs.50 Lacs*.10%). For rest of all the transaction during the year TDS will be deducted from each Purchase transaction.

What happen in case of provision of section 194Q are not compiled with?

  • If the seller is not having the PAN then TDS rate applicable will be 5% of the Purchase transaction/payment thereof.
  • If the purchaser fails to deduct TDS as applicable, section 40A (IA) is going to provide that the value of Purchase transaction on which TDS is not deducted will be subject to 30% disallowance means thereby that even purchase supported by bills or GR's can be disallowed to the extent of 30% of the transaction value if TDS is not deducted.

For Example:- If small amount of required to be TDS deducted Rs.5000 only, but if not deducted huge disallowance of Rs.15 lacs will have to be borne by XYZ(Purchaser).

When TDS is not required to be deducted under section 194Q?

In Fifth Proviso to the section that if TDS is deducted on the transaction under any other section of the Income tax act (Other than TCS collected under section 206(c)(1H) of the act then TDS is not required to be deducted on the transaction.

For Example:- If TDS is deducted on transaction under section 194C then no TDS is required to be deducted under section 194Q but if seller is required to collect TCS under section 206(c)(1H) the purchaser will still be required to deduct TDS under section 194Q irrespective of TCS collected by Seller.

But carefully note that section 206(c)(1H) is currently being followed 2nd Proviso to the same provides that TCS will not be required to collected if TDS is applicable on transaction for deduction on the transaction under any other provision of law.


Will TDS under section 194Q be deducted on GST amount also?

Purchaser is required to deduct the TDS under section 194Q on amount of Purchase but while paying to the supplier payment of GST is also required to be made. To keep the life simple deducting TDS on Gross Amount doesn't involve noncompliance of part of the purchaser but for supplier it might involve cash flow reduction so far as GST liability for payment of its sale is concerned. In my opinion, like in other transaction covered under section 194 C we usually deduct TDS on basics amount only, here too deduction of TDS be made on net amount only & GST amount is paid in full while making the payment to supplier.

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Category Income Tax, Other Articles by - rajat jain