Understanding New TDS Provisions on Purchase of Goods u/s 194Q with Practical Examples

Mayank Mohanka , 02 July 2021

In this Taxalogue, the new provisions of TDS on purchase of goods, contained in section 194Q, applicable w.e.f. 1.7.2021, is being explained with the help of some easy to understand practical illustrations.

Practical Examples on Section 194Q

1. Mr. Goodly purchases goods worth Rs. 15 lakhs on 30.6.2021. He purchases goods worth Rs. 50 lakhs on 1.7.2021. His turnover in previous financial year 2020-21 was 11 crores.

Is Mr. Goodly required to deduct TDS u/s 194Q & if yes, on what amount & at what rate?

Ans. Since turnover of Mr. Goodly in previous FY 2020-21 was in excess of Rs 10 cr & the value of goods purchased by him in current FY 2021-22, exceeds Rs. 50 lakhs (15 lakhs plus 50 lakhs= 65 lakhs), so, Mr. Goodly is liable to deduct TDS @0.1% u/s 194Q of Rs. 1500 on purchases of Rs 15 lakhs. (65 lakhs - exemption limit of Rs 50 lakhs). Purchases of Rs 15 lakh on 30.6.2021 will be taken into account in determining the threshold limit of Rs 50 lakhs for FY 2021-22 but TDS is to be deducted only on purchases made on or after 1.7.2021.

2. If in above example, Mr Goodly purchases goods worth Rs. 20 lakhs on 30.6.2021 & 60 lakhs on 1.7.2021, then Mr Goodly is liable to deduct TDS @0.1% of Rs. 3000, on purchases of Rs. 30 lakhs.

3. Suppose, Mr Goodly purchases goods worth Rs. 60 lakhs on 30.6.2021 & 50 lakhs on 1.7.2021, then Mr Goodly is liable to deduct TDS @0.1% of Rs. 5000, on purchases of Rs. 50 lakhs.

4. If, in above example, Mr Goodly purchases goods worth Rs. 60 lakhs on 30.6.2021 & 40 lakhs on 1.7.2021, then Mr Goodly is liable to deduct TDS @0.1% of Rs. 4000, on purchases of Rs. 40 lakhs.

5. If Mr. Goodly has purchased goods from Mr. Selldom worth Rs. 55 lakhs on 31.3.2021 and Rs. 50 lakhs on 1.7.2021, and Mr. Selldom has received payment of Rs. 60 lakhs on 15.7.2021, with respect to the two purchases made by Mr. Goodly, whether TDS has to be deducted or TCS has to be collected? (assuming other conditions of section 194Q and section 206C(1H) are satisfied)

Ans. Since the buyer Mr. Goodly has not crossed the threshold limit of Rs. 50 lakhs in FY 2021-22 and the seller Mr. Selldom has received the amount exceeding the threshold limit of Rs. 50 lakhs, on 15.7.2021, in FY 2021-22, the seller Mr. Selldom has to collect the tax (TCS) of Rs. 1000 @ 0.1% on Rs. 10 lakhs, if all the conditions of section 206C(1H) are satisfied.

A Quick Referencer on Section 194Q & Section 206AB applicable w.e.f. 1.7.2021

1. A Buyer purchasing any goods in value exceeding Rs. 50,00,000/- in a financial year & having his turnover from business or profession in excess of Rs. 10 crores, in immediately preceding financial year, from a resident seller, is liable to deduct TDS u/s 194Q @ 0.1% of such purchase consideration in excess of Rs 50 lakhs, on or after 1.7.2021.

2. TDS liability u/s 194Q will arise on all purchases booked or paid on or after 1.7 2021. Purchases booked or paid between 1.4.2021 till 30.6.2021 will be considered for determining the threshold purchase limit of Rs. 50,00,000/- in FY 2021-22.

3. The critical issues that whether TDS needs to be deducted on purchases booked before 1.7.2021 but paid after 1.7.2021, and assuming all other conditions of section 194Q are fulfilled, and whether TDS needs to be deducted on principal purchase value alone or GST also, require an appropriate clarification from CBDT, and CBDT will soon come out with a clarification circular on section 194Q.

4. In case of Non furnishing of PAN by Seller, TDS Rate will be 5% u/s 206AA.

5. In case of non filing of ITR by the seller, in immediately two preceding financial years for which due date of return filing u/s 139(1) has expired, and the aggregate amount of TDS or TCS of such seller, in each of these two preceding financial years is Rs 50,000 or more, then TDS rate u/s 206AB will be 5%.

6. The liability of the buyer, to deduct TDS u/s 194Q will prevail over the liability of the seller to collect TCS u/s 206C(1H) on all purchase/sale transactions entered after 1.7.2021.

7. If the Buyer fails to deduct the applicable TDS u/s 194Q then in addition to penal interest a disallowance of 30% of his purchases on which TDS was required to be deducted will get attracted.

8. Another newly inserted section 206AB mandates deduction of TDS at higher rate of twice the applicable rate or 5% whichever is higher, in case of specified persons.

9. Specified person for section 206AB means a deductee who has not filed his/her ITR for the immediately two preceding financial years, for which time period for original return filing u/s 139(1) has expired, & the aggregate annual amount of TDS & TCS in his/her case, exceeds Rs. 50,000, in each of the two preceding financial years.

10. The provisions of section 206AB will not be applicable on TDS deducted under sections 192 (Salary), 192A (premature withdrawal of PF), 194B (winning from lotteries, crossword puzzles), 194BB (winning from race horses), 194LBC (investment in securitization trust) and 194N (cash withdrawals).

11. For any TDS to be deducted in current FY 2021-22, the two relevant previous financial years to be checked are FY 2018-19 & 2019-20, uptill the due date of filing ITR for FY 2020-21 i.e. 30.9.2021 for non auditable cases, 30.11.2021 for auditable cases & 31.12.2021 for transfer pricing auditable cases.

12. After the expiry of these ITR Filing due dates, the two relevant previous financial years for TDS deducted in FY 2021-22, will become FY 2019-20 & FY 2020-21.

13. If the deductee has not furnished its PAN & has also not filed its ITR in immediately 2 preceding financial years, then higher of the TDS Rate as per section 206AA or 206AB will apply.

मयंक मोहनका की कलम से
सेक्शन 194Q पर दो पंक्तियाँ...
दोस्तों, हो गया है अब 1.7.2021 से कम्पल्सरी, 50 लाख से ज्यादा खरीदी पर काटना टीडीऐस,
और जो ना काटा, तो झेलनी पड़ेगी तीस % खरीदी disallowance की मुसीबत सीरीअस।
सेक्शन 206AB पर दो पंक्तियाँ...
दोस्तों अगर जो ना भरी आपने अपनी पिछले दो सालों में इंकमटैक्स रिटर्न,
तो अब 1.7.2021 से कटवाना पड़ेगा आपको डबल टीडीऐस अपनी इंकम पर, इन टर्न।

The author can be reached at mayankmohanka@gmail.com

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Category Income Tax, Other Articles by - Mayank Mohanka