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TDS on purchase of goods (Section 194Q)

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The Finance Act 2021 has introduced a new Section 194Q providing for TDS on purchase of goods with effect from 1st July 2021. Section 194Q imposes a liability on the buyer to deduct tax while paying to the seller (i.e., tax incidence falls on the seller).

Turnover threshold for applicability of Section 194Q

The tax shall be deducted under Section 194Q by a buyer carrying on a business whose total turnover from the business exceeds Rs 10 crores during the financial year immediately preceding the financial year in which such goods are purchased. This will not include the turnover from non-business activities.

For example, the liability to deduct tax under this provision in the financial year 2022-2023 shall arise if the turnover of the purchaser was more than Rs 10 crores in the financial year 2021-22.

Transaction threshold of Rs 50 lakhs

This TDS is applicable in case of transactions of purchase of goods of more than Rs.50 lakhs. The following points need to be considered while computing the threshold of Rs 50 lakhs.

  • Purchase amount will be taken without including GST component.
  • In case of advance payment, tax has to be deducted on the whole amount (including GST) as it is not possible to identify GST component from the purchase amount
  • If the money is refunded by the seller at the time of purchase return to the buyer, TDS may be adjusted against the next purchase from the same seller.
  • If the purchase return is replaced by goods by the seller, then no adjustment will be required since in that case the purchase has been completed with the goods so replaced.

Rate of TDS on purchase of goods

TDS shall be deducted by the buyer of goods at the rate of 0.1% of the purchase value exceeding Rs 50 lakhs. Note if the seller has not furnished his PAN, TDS shall be deducted at the rate of 5%.

Illustration:

Particulars Rs. in crores
Turnover of Seller 6
Turnover of Buyer 12
Sale of goods 2
Sales consideration paid during the year  1
Who is liable to deduct tax? Buyer
Rate of Tax (Seller has provided PAN) 0.1%
Amount on which tax to be deducted (Transaction amount minus 50 lakhs) 1.5
   1.5 * 0.1%
 TDS amount  15,000

 

 

What type of purchase transactions will not be covered u/s 194Q?

Buyer shall not be required to deduct TDS u/s 194Q in relation to the following transactions:

(i) Purchase of goods of Rs 50 lakhs or below.

(ii) Purchase of services.

(iii) Purchase of goods from a non-resident seller.

(iv) Purchase of goods from a seller whose income is fully (100%) exempted under section 10 or 11 of the Income Tax Act.

(v) Transactions in securities & commodities traded through recognized stock exchange & clearing corporation including those located in IFSC.

(vi) Transactions in electricity, renewable energy certificates & energy saving certificates traded through power exchanges

(vii) Transactions on which TDS is deductible under other provisions of the Income Tax Act.

Last date for deduction and deposit of TDS

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'.

Tax deducted on purchase of goods is to be deposited within 07 days from the end of the month in which tax is deducted. If the payment is made in the month of March, then the time limit to deposit tax is on or before 30th April of the next financial year.

What happens if TDS is not deducted or deposited?

(I) If the buyer is liable to deduct TDS on purchase of goods and fails to deduct the same, he will be liable to pay interest @ 1% per month from the date when tax is deductible till the date when tax is deducted.

(ii) If the buyer deducts TDS on payment made to the seller but has not deposited the same to the government, he will be liable to pay interest @ 1.5% per month from the date when tax is deducted to the date of deposit of the TDS.


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CA Anand Singh

CA Anand Singh

I am a practising Chartered Accountant with 6 years of experience in Direct and Indirect Taxation, FEMA, Corporate Law and Audit etc.