TDS on purchase of goods

The Finance Act 2021 has inserted a new section 194Q to provide for TDS by person responsible for paying any sum to any resident for purchase of goods of the value in excess of 50 Lakhs.

Rate of TDS

The rate of TDS is 0.1%.

Applicability

The TDS is required to be deducted by those people (i.e buyer) 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 takes place.

TDS under this section shall be applicable on aggregate purchases over Rs.50 Lakhs in a previous year.

This provision will be applicable from 1^st July 2021.

Salient features of this section

Buyer of all goods will be liable to deduct tax at source @ 0.1% of sale consideration for goods exceeding Rs. 50 Lakhs in a Financial Year.

e.g. if the value of purchases from a supplier is 51 Lakhs during FY TDS to be made @0.1% on Rs.1 Lakh

This condition needs to be evaluated separately for each seller and the amount needs to be evaluated separately every Financial Year.

It is to be noted that this section is not applicable to payment made for services.

• This section applies to payments made for the purchase of goods from Residents. Thus it does not apply to import purchases made from non-resident suppliers.
• TDS rate is 5% if the seller does not provide PAN
• TDS obligation will be on buyers who have gross receipts/turnover exceeding INR 10 Crores in preceding financial year
• Tax to be deducted at the earliest of the following:

i) at the time of credit of such sum to the account of the seller or

ii) at the time of payment

• No requirement of TDS u/s 194-Q on a transaction:
  • if TDS is deductible under any other provision or 
  • TCS is collectible under section 206C [excluding 206C(1H)]
• It implies that if on a transaction a TDS or tax collection at source (TCS) is required to be deducted under any other provision, then it would not be subjected to TDS under this section. However, there is one exception to this general rule is that if on a transaction TCS is required under sub-section (1H) of section 206C as well as TDS under this section, then on that transaction only TDS u/s194Q shall be deducted.

In case of overlap between the two provisions, TDS u/s 194Q will apply and TCS u/s 206C(1H) will not apply

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

Consequences of non-compliance with section 194Q

If the purchaser fails to deduct TDS as applicable, section 40A (IA) will apply and consequently, the value of the purchase transaction on which TDS is not deducted will be subject to 30% disallowance. It means that even purchase supported by bills or GRN's shall be disallowed to the extent of 30% of the transaction value if TDS is not deducted.

Intention behind introduction of this section

The intention of the Government to introduce this new TDS provision seems to track large value transactions without any trail where GST amounts is being misappropriated. The government intends to bring all such purchase transactions under audit trail so that such transactions could be tracked or bring under the trail of TDS provisions and checked in future, if necessary.

The author is a practicing Chartered Accountant at Aurangabad -Maharashtra