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An In-Depth analysis of Section 194Q, Sections 206AB & 206CCA

 RATAN KUMAR AGARWALA| Income Tax - Articles 29 Jun 2021 954 Views 0 comment

The Article is meant to have a deep insight into the Provisions of Section 194Q vis a vis Section 206AB and Section  206CCA read with  Sub Section (1H) of Section 206C of the Income Tax Act, 1961. The author has made a humble attempt to touch the relevant topics on the subject. But since the insertions are very new and will become effective on and from 1st July, 2021 only, clear legal impact of the provisions and stands to be taken by the Department on the basis of facts of each case is a matter to attain more clarity over time. The readers may please point out to the author any possible improvement in the materials taken into account by him.                                              

SECTION 194Q, SUB SECTION 1: AS PER BARE ACT

‘Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or 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 per cent. of such sum exceeding fifty lakh rupees as income-tax.’

As per Explanation to Section 194Q (1), “for the purposes of this sub-section, “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, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein”

Section 194Q has been inserted into the Statute Books by the Finance Act, 2021 to be effective from 1st July, 2021.

IMPACT:

The Section puts the burden of TDS on purchase upon the Buyer as defined in the Explanation to Sec 194Q (1).  The TDS will be applicable if and only if the following conditions are fulfilled:

1. It is applicable to any person whether it is an Individual, Partnership, Company, Limited Liability Partnership or any other form of purchaser who satisfies the definition of a person and a Buyer under this Section.

2. The TDS referred to is applicable on purchase

3. The purchased item must be “Goods”, i.e., the purchased item must be used for resale or further processing into a further product for sale.

4. The aggregate value of purchase from the seller exceeds Rs. 50 lacs in any previous year.

5. TDS shall be deducted at the time of credit of such sum to the account of the seller or at the time of payment thereof in any mode, whichever is earlier.

6. Rate of TDS shall be 0.1% of such sum exceeding Rs. 50 lacs.

7. The aggregate sales, gross receipts or turnover from the business carried on by the buyer exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out.

IMPORTANT ISSUES:

Some important and pertinent issues cannot be ignored in this context:

1. TDS is applicable on purchase of goods. The word Goods have not been defined in the Section. So, a normal meaning of the word as defined in the Sale of Goods Act, 1930 may have to be relied upon. The said Act defines goods as every kind of moveable property. other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. It means if the Buyer is a dealer even in Securities (i.e., stocks and shares), then TDS shall become applicable if other parameters are met with even if the Integrated Goods and Services Act, 2017 exclude Securities from the definition of Goods.

2. Goods purchased not for sale or use in manufacture of saleable goods may not be covered under this Section like Capital Assets purchased for use in business like Office Accommodation, Plant and Machinery etc.

3. Payment for Services not involving purchase of goods shall not be covered under this Section for TDS. Like Services from a Contractor not involving purchase of goods.

NON-APPLICABILITY:

Transactions to which Section 194Q does not apply:

i. Where Tax is deductible under any provision of the Income Tax Act, 1961

ii. Where Tax is collectible under the provisions of Section 206C. However, this exemption does not apply in a case where a transaction is covered under Section 206C, Sub Section 1H of the Income Tax Act, 1961.

 CASE OF NO PAN AND/OR NON-FILERS OF I T RETURN:

The Section 194Q must be read with the Section 206AA and 206AB of the Income Tax Act, 1961.

Section 206AA:

Section 206AA of the Indian Income–tax Act, 1961 (the Act) provides that if PAN is not furnished by the payee, the withholding tax rate would be 20% or the rate in force, whichever is higher. The mandatory requirement to furnish PAN poses an undue hindrance for non-residents. Where the Tax to be deducted under Section 194Q, the above rate of 20% will be deemed as replaced by 5%. This amendment as to 5% have come wef 1st July, 2021.

AMBIGUITY:

The words and phrases in the Section as “deduct an amount equal to 0.1% of such sum exceeding fifty lakh rupees” are a bit confusing as to whether the TDS will be applicable to entire sum of Rs. 50 Lacs or on the sum exceeding Rs. 50 Lacs i.e., the balance above Rs. 50 Lacs. This matter needs clarification. Pending clarification, for the purpose of safety, TDS should be applied to entire sum when it exceeds Rs. 50 lacs.

 A simple format of declaration by Deductee under Section 206AA can be as under:

NAMETRADE NAMEADDRESSPAN

SECTION 206AB (With effect from 1st July, 2021)

AS PER BARE ACT:

206AB. Special provision for deduction of tax at source for non-filers of income-tax return.

(1) Notwithstanding anything contained in any other provisions of this Act, where tax is required to be deducted at source under the provisions of Chapter XVIIB, other than section 192, 192A, 194B, 194BB, 194LBC or 194N on any sum or income or amount paid, or payable or credited, by a person (hereafter referred to as deductee) to a specified person, the tax shall be deducted at the higher of the following rates, namely: —

(i) at twice the rate specified in the relevant provision of the Act; or

(ii) at twice the rate or rates in force; or

(iii) at the rate of five per cent