TDS on Purchase of Goods in Income Tax w.e.f 1st July 2021

Arjuna (Fictional Character): Krishna, Finance Act 2021 introduced a new section 194Q for TDS on Purchase of goods which will be effective from 01.07.2021. 

Krishna (Fictional Character): Arjuna, in the previous year a new provision of TCS was introduced on the sale of goods from 01/10/2020 and now a provision of TDS on purchase of goods is introduced on similar lines.

Arjuna (Fictional Character): Krishna, please explain the provisions of this new section.

Krishna (Fictional Character): Arjuna, the following are the provisions of section 194Q in brief:

1. A purchaser will be liable to deduct TDS if his turnover during the last year exceeds Rs.10 crores and he purchases goods of value exceeding Rs.50 lacs in the current year from a seller.
2. TDS is to be deducted on an amount exceeding Rs. 50 Lacs at the rate of 0.1%. But if the seller has not provided PAN, TDS to be deducted @5%
3. TDS is to be deducted at the time of credit or payment of an amount to the seller’s account, whichever is earlier.
4. The provision of this section will not be applicable if TDS is deductible under any other provision or TCS is collectible other than TCS u/s 206C(1H) i.e. on sale of goods.

Arjuna (Fictional Character): Krishna, What are the important points to be kept in mind regarding section 194Q?

Krishna (Fictional Character): Arjuna, The important points to be kept in mind are as follows:

1. Provisions of section 194Q are not applicable when the seller is a non-resident.
2. As it is not specifically mentioned, section 194Q will apply to the purchase of both types of goods, revenue, and capital goods.
3. Transactions where both section 194Q i.e. TDS on purchase of goods and 206C(1H) i.e. TCS on sale of goods become applicable, then TDS will be applicable, and buyer will have to deduct TDS on purchase. The seller will not be liable to collect TCS.
4. In case the buyer fails to comply with the provisions of this section, there would be disallowance of the expenditure up to 30% of the value of the transaction.

Arjuna (Fictional Character): Krishna, What care should be taken by the purchaser?

Krishna (Fictional Character): Arjuna, the purchaser should take care of the following:

1. If the purchaser is liable to deduct TDS, he should inform the seller not to collect TCS on it.
2. The purchaser should deposit the TDS deducted every month by the 7th of the next month.
3. The purchaser should file TDS Quarterly returns in Form 26Q by the end of the month after the end of the quarter.
4. The purchaser to issue a TDS certificate in Form 16A to the seller.

Arjuna (Fictional Character): Krishna, what will be the impact of this new section on taxpayers?

Krishna (Fictional Character): Arjuna, the provision has been enacted to trace the persons who are not filing returns and/ or paying taxes. However, the section is quite complicated as both TDS and TCS may be liable for a single transaction. In the above case, TDS will prevail over TCS but this may create confusion and both the seller and purchaser will collect/ deduct TCS/ TDS on it. The taxpayers will have to take extra efforts to comply with this provision.