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Stated by section

Effective from 01-July-2021, Any person, being a buyer who is responsible for paying any sum to any resident for purchase of any goods of the aggregate of such value exceeding fifty lakh rupees in any previous year, shall, 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 percent. of such sum exceeding fifty lakh rupees as Income Tax.

Important Points to keep in mind

  • 'Buyer' means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out.
  • In case Seller provided PAN card details, Rate will be 0.1% otherwise it will deducted @5% as per Sec206 AA.
  • The provisions of this section shall not apply to a transaction in following cases:-
    • tax is deductible under any of the provisions of this Act; and
    • tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies(TCS).
  • It is clarified that if on a transaction TCS is required u/s 206C(1H) as well as TDS under this section, then on that transaction only TDS under this section shall be carried out. It means if a transaction is subject to TCS u/s 206C(1H) then buyer shall have first obligation to deduct tax. If he does so seller will not have any obligation to collect tax u/s 206C(1H). Seller shall be liable to collect tax only if purchaser is not liable to deduct tax or purchaser failed to deduct tax.
  • TDS shall be deducted on remaining amount of purchase after 50lacs.
  • If by mistake TDS is not deducted, then 30% of purchase amount shall be disallowed u/s. 40(a)(ia) and will be added to total income.
  • TDS shall be deducted on purchases made from India. Import of goods is not liable to TDS.
  • As not specifically mentioned, provisions of section 194Q apply to the purchase of both the types of goods i.e. capital as well as revenue.
  • As the tax has to be computed on the purchase value, the adjustment made to the ledger of the seller by issuing the debit note will not have an impact on the tax to be deducted. The position would remain the same if, after the deduction of tax, the seller repays some consideration to the buyer. In such a situation, the amount of purchase value shall not be reduced with the amount so refunded or the debit note so adjusted for calculation of TDS.
  • A similar issue has been raised in respect of Section 194J, to which the CBDT vide Circular No. 23/2017, dated 19-7-2017, has clarified that wherever in terms of the agreement or contract between the payer and the payee, the component of ‘GST on services’ comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source on the amount paid or payable without including such ‘GST on services’ component. However, such clarification was issued in respect of GST on services only. No such clarification has been issued for GST on goods.
Section 194Q: TDS on Purchase of Goods Exceeding Rs. 50 Lakhs

However, in respect of Section 206C(1H), the CBDT vide Circular No. 17, dated 29-09-2020, has clarified that since the collection is made with reference to receipt of the amount of sale consideration, no adjustment on account of indirect taxes including GST is required to be made for the collection of tax under this provision. Since deduction under Section 194Q is to be made with reference to the purchase value, applying the same principle it can be concluded that GST shall form part of the purchase value, therefore, the TDS is deductible on the purchase value inclusive of GST.

Seller T/O (In Crore)

Buyer T/O (In Crore)

Receipt or Payment for sale or purchase of Goods in previous year (In Lakhs)

Amt. on which tax will be calculated

Seller PAN

Buyer PAN

TDS

TCS

Liable Person

Section

Exclusion Section

Reason

9

12

54

4

Available

N/A

Yes @0.1%

N/A

Buyer

194Q

Out of scope of Sec 206C (1H)

Seller Turnover less than 10 Cr.

14

8

57

7

N/A

Available

N/A

Yes @0.1%

Seller

206C(1H)

Out of scope of Sec 194Q

Buyer Turnover less than 10 Cr.

13

14

62

12

Available

Available

Yes @0.1%

N/A

Buyer

194Q

Out of scope of Sec 206C (1H)

Exclusion Provided under Sec 206C(1H)

9

12

54

4

Not Available

N/A

Yes @5%

N/A

Buyer

194Q/ 206AA

Out of scope of Sec 206C (1H)

Seller Turnover less than 10 Cr.

14

8

57

7

N/A

Not Available

N/A

Yes @1%

Seller

206C(1H) / 206AA

Out of scope of Sec 194Q

Buyer Turnover less than 1

 

Comparison of Sec 194Q and 206C(1H) of Income Tax Act, 1961

Particulars

194Q

206C(1H)

Purpose

Tax to be DEDUCTED

Tax to be COLLECTED

Applicable to

Buyer/Purchaser

Seller

With effect from

01/07/2021

01/10/2020

When Deducted or collected

Payment or credit, whichever is earlier

At the time of receipt

Advances

TDS shall be deducted on advance

payments made

TCS shall be collected on advance receipts

Rate of TDS/TCS

0.1%

0.1% (0.075% for FY 2020-21)

PAN not available

5%

1%

Triggering point

Turnover/Gross Receipts/Sales from the business of BUYER should exceed Rs.10cr during previous year (Excluding GST)

Purchase of goods of aggregate value exceeding Rs.50Lakhs in P.Y.

Turnover/Gross Receipts/Sales from the business of SELLER should exceed Rs.10cr during previous year (Excluding GST)

Sale consideration received exceeds Rs.50Lakhs in P.Y. (The value of goods includes GST)

When to deposit/collect

Tax so deducted shall be deposited with government by 7th day of subsequent month

Tax so collected shall be deposited with government by 7th day of subsequent month

Quarterly statement to be filed

26Q

27EQ

 

How to ensure compliance of Section 194Q

In any business, purchase is an ongoing process and it is difficult to keep tab to identify as and when purchase from any vendor is exceeded Rs. 50 lakhs especially in a big organization. Hence, atomization is the only solution for compliance of section 194Q. Hence, following steps are required to atomization:

  • On the basis of previous year, identify the vendors from whom purchases for more than Rs. 50 lakhs have been made in previous year and arrange alteration in the master of these vendor with activation of TDS deduction option in your accounting software.
  • Arrange changes in your accounting software so that software can automatically identify and deduct TDS or provide you alert to deduct TDS as and when purchase of any vendor exceed from Rs. 50 lakhs during the current accounting year.

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


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Category Income Tax, Other Articles by - CA Pankaj Agarwal  



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