All about Section 194Q (TDS on Purchase of Goods)

Until now, we were habituated to deduct TDS on availment of services. However, Finance Act, 2021 has made it mandatory to deduct TDS on the purchase of goods, on fulfilment of certain conditions. Finance Act 2021 has introduced a new Section – 194Q TDS on Purchase of Goods, which will be coming into effect from 1st July 2021. This new Section is quite complicated and will definitely demand some extra efforts from Accountants and Professionals. Ree about the salient features of the provision.

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Who is Liable to Deduct TDS?

A Person (Buyer) will be liable to deduct TDS if-

1. His Turnover during the previous financial year exceeds Rs.10 crores

AND

2. Purchases of goods exceed Rs.50 Lakhs in value (Including GST) in the current year from a Seller (PAN-Wise).

AND

3. Purchase is made from a Resident Supplier.

What will be the Rate of TDS?

The tax shall be deducted by the buyer of goods at the rate of 0.1% of the purchase value exceeding Rs. 50 lakhs if the seller has furnished his PAN, otherwise, the tax shall be deducted at the rate of 5%.

Example 1: Goods Purchased on 15th July 2021 for Rs 90 lakhs. Payment made Rs 60 lakhs on 17th July 21.

TDS to be deducted u/s 194Q @0.1% on Rs 40 lakhs (i.e. 90-50) i.e Rs 4000/-

Example2: Goods Purchased on 15th May 2021 for Rs 90 lakhs, payment made Rs 60 lakhs on 2nd July 2021: –

TDS u/s 194Q will NOT be applicable since purchase was made before 01st July 2021. However, TCS u/s 206C(1H) will be applicable in case the turnover of the seller exceeds Rs 10 Cr in FY 2020-21.

What are the cases where TDS is not deductible?

1. If TDS is deducted in any other provision

If the seller is not resident in India.

1. On purchases of goods made up to 30th June 2021.

NOTE: Memorandum to Finance Act, 2021 clarifies that in case of a where both TDS under this Section and TCS under Section 206C(1H) is applicable, then only TDS u/s 194Q shall be deductible.

What are the consequences of non-compliance of sec 194Q?

As per section 40a(ia) of Income Tax Act 1961, if the Buyer fails to deduct TDS, 30% of the expenditure will be disallowed, and shall be allowed in the year in which the same is deducted and paid.

Other Important points to be noted

1. Purchase of goods can be of Revenue or Capital Nature.

2. If a person is falling within the definition of the buyer, tax is required to be deducted even if such purchase is not connected with the business carried on by him.

3. Immovable property is not “goods”. Further TDS u/s 194IA is specifically present for deduction of TDS on the value of Immovable property exceeding Rs 50 lakhs.

4. Advance for payment of goods will also attract TDS U/s 194Q since the said section requires TDS obligation for “any sum for the purchase of any goods” which includes advance payments

5. Applicable 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. Even if the amount is credited to suspense A/c or by any other name.

6. Since no amendment is made in section 197/197A, as such, the seller does not have the option to approach the Assessing Officer to issue a certificate for a lower tax deduction or to file a declaration for nil deduction in respect of transactions covered under section194Q.

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