Section 194Q TDS on Purchase of Goods & its interplay with TCS on Sale of Goods

Finance Act 2021 has introduced a new Section in TDS – 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. Earlier since October 2020, a new provision of TCS was introduced and now a similar TDS provision is introduced to cover the uncovered part of the Dealings of Goods. Full Provision of TCS on Sale of Goods was explained in the last article in the very Summarised way, link of which is given at the end of Article. This Article will help you to have clarity over the upcoming Statutory Requirement and will help you understand when TCS is applicable and when TDS is applicable.

Provision – Section 194Q of Income-Tax Act

A person (Purchaser) will be liable to deduct TDS if-

1. His Turnover during last year exceeds Rs.10 crores. AND

2. Purchaser purchases of goods of Value exceeding Rs.50 Lakhs (Including GST) in the current year from a Seller (PAN-Wise). AND

3. Purchase is made from a Resident Supplier.

Rate of TDS:- 0.1% of Total Value of Transaction. If PAN of Seller is not provided to Buyer, TDS@5% is to be deducted.

Time Limit for deduction of TDS:- Earlier of payment or Credit to Account of Seller. Proviso to said section clarifies that even if the amount is credited to any account whether it be Suspense or any other, such credit shall be deemed to be Credited to Account of Seller and TDS shall apply accordingly.

Non-compliance of section 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.

Cases when TDS is not deductible:-

1. If TDS is deductible under any other provision or

2. TCS is collectible under section 206C [excluding 206C(1H)]

(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.)

Illustration when TDS is Applicable & when TCS is Applicable:-

Scenario	Buyer’s Turnover in Last Year	Seller’s Turnover in Last Year	Transaction during Year	Section Applicable	Person Liable	Remark
1	9 Cr	9 Cr	60 Lakhs	Not Applicable	–	Both Buyer & Seller Turnover < 10 CR
2	9 Cr	11 Cr	60 Lakhs	TCS u/s 206C (1H)	Seller	Seller Turnover > 10 Cr & Buyer < 10 Cr – Transaction > 50 Lakhs
3	11 Cr	9 Cr	60 Lakhs	TDS u/s 194Q	Buyer	Buyer Turnover > 10 Cr – Transaction > 50 Lakhs
4	11 Cr	11 Cr	60 Lakhs	TDS u/s 194Q	Buyer
5	11 Cr	11 Cr	45 Lakhs	Not Applicable	–	Transaction < 50 Lakhs

Bare Act Provision for your ready Reference – 

Sec 194Q – TDS on Purchase of Goods

‘194Q. (1) 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. Explanation.

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 Rs. 10 crores 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.

(2) Where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

(3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.

(4) Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income tax authorities and the person liable to deduct tax