11 important points for TDS under Section 194Q on purchase of goods

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TDS under Section 194Q

The Finance Act, 2021, has inserted Section 194Q in Income-tax Act,1961, with effect from 01-07-2021, to provide for the deduction of tax on certain purchases. The TDS has to be deducted if the value or aggregate purchase value exceeds Rs. 50 lakhs during the previous year. This blog will tell you 11 important points for TDS under Section 194Q on purchase of goods.

TDS is required to be deducted at the rate of 0.1% by every buyer who is responsible for payment to a resident seller. Here are the 10 key points related to the provision for deduction of TDS under section 194Q on purchase of goods:

  1. When a buyer is required to deduct TDS?

A buyer is required to deduct tax at source under this provision, if the following conditions are satisfied:

(a) He is carrying on a business;

(b) He is paying any sum to a resident person for purchase of any goods;

(c) Total sales, gross receipts or turnover from the business exceeds Rs. 10 crores during the financial year immediately preceding the financial year in which such goods are purchased; and

(d) Goods are purchased for a value or aggregate of value exceeding Rs. 50 lakhs in any previous year.

The Central Govt. has notified that ‘Air India Assets Holding Limited’ shall not be considered as ‘buyer’ in case of transfer of goods by ‘Air India Limited’ under a plan approved by the Central Government.

  1. Is a non-resident buyer required to deduct TDS?

The CBDT has clarified that no tax is required to be deducted by a non-resident buyer if the purchase of goods is not effectively connected with the permanent establishment in India. For this purpose, “permanent establishment” shall include a fixed place of business through which the business of the enterprise is wholly or partly carried on. Further, it has been clarified that no tax is required to be deducted during the year of incorporation.

  1. On what amount TDS is to be deducted?

Tax is required to be deducted from the purchase value exceeding Rs. 50 lakhs. Tax is required to be deducted if goods are purchased for a value or aggregate of value exceeding Rs. 50 lakhs in any previous year.

The CBDT has clarified that since the threshold of Rs. 50 lakhs is with respect to the previous year, calculation of sum for triggering TDS under this provision shall be computed from 01-04-2021. Hence, if a person being a buyer has already credited or paid Rs. 50 lakhs or more up to 30-06-2021 to a seller, the TDS under this provision shall apply on all credit or payment during the previous year, on or after 01-07-2021, to such seller.

  1. At what rate tax is required to be deducted?

Tax is required to be deducted at the rate of 0.1%. The rate shall not be further increased by Surcharge and Health & Education Cess. However, if the seller has not furnished his PAN or Aadhaar, otherwise, the tax shall be deducted at the rate of 5%.

  1. At what time TDS is to be deducted?

Tax is required to be deducted 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. The tax shall be deducted even if the sum is credited to the ‘Suspense Account’.

  1. Is TDS to be deducted on Advance Payments?

This provision requires the buyer to deduct tax on the credit of sum in the account of seller or on payment of such sum, whichever is earlier. Thus, the provisions of this section shall apply to advance payment made by the buyer to the seller. Further, this provision shall not apply on any sum credited or paid before 01-07-2021. If either of the two events had happened before 01-07-2021, that transaction would not be subjected to the provisions of this Section.

  1. Whether TDS to be deducted on securities?

The CBDT has clarified that the provisions of Section 194Q shall not be applicable in relation to transactions in securities (and commodities) that are traded through recognised stock exchanges or cleared and settled by the recognised clearing corporation, including recognised stock exchanges or recognised clearing corporations located in International Financial Service Centre (IFSC).

  1. Can a seller apply for the certificate for a lower deduction of TDS?

An assessee can apply to the Assessing Officer to issue a certificate for deduction of tax at lower rates. Such certificate shall be issued if existing and estimated tax liability of assessee justifies deduction of tax at a lower rate. Further, certain assessees have an option to file a declaration for nil deduction of tax.

However, the Finance Act, 2021, has not extended the benefit of applying for a certificate for deduction of tax at lower rates or filing a declaration for nil deduction in respect of transactions covered under Section 194Q. Hence, the assessee does not have the option to approach the assessing officer to issue a certificate for a lower tax deduction or file a declaration for nil deduction regarding transactions covered under section 194Q. 

  1. Is TDS to be deducted amount including GST?

Tax under this provision shall be deducted on the amount credited without including GST if tax is deducted at the time of credit of amount in the account of the seller and the component of GST comprised in the amount payable to the seller is indicated separately as per the terms of the agreement or contract between the buyer and the seller.

If the tax is deducted on a payment basis because the payment is earlier than the credit, the tax would be deducted on the whole amount as it is not possible to identify the payment with the GST component to be invoiced in future.

  1. How to deposit TDS?

Tax deducted at source is required to be deposited to the credit of Central Government through Challan ITNS 281 within 7 days from the end of the month in which tax was deducted. However, the tax deducted during March shall be deposited by 30th April of the next financial year. If deductor is a government office and tax is required to be deposited without submitting an Income-tax Challan, the Govt. Dept. shall deposit the tax on the same day on which tax has been deducted.

  1. How to file TDS Compliances?

Do all your TDS and TCS Compliances with Taxmann’s e-TDS software. We have provided an update for making a deduction under Section 194Q. It will automatically compute the TDS at the applicable rate. 

Corresponding checks for non collection of TCS on similar payments under Section 206C(1H) also provided in the software.

About the Author:

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of Editor-In-Chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in our publications and research platform.

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