New Section 194Q has been proposed to be inserted which reads as under: -
Section 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.
Rate of TDS under section 194Q
Buyer of all goods will be liable to deduct tax at source
Ø @ 0.1% of sale consideration
Ø exceeding INR 50 Lakhs in a Financial Year
Tax to be deducted @ 5%
Ø if the seller does not provide PAN/Aadhar
Turnover for applicability of section 194Q
TDS obligation will be on buyers who have gross receipts/turnover exceeding INR 10 Crores in preceding financial year
Conditions for applicability of section 194Q
TDS obligation will arise
Ø if the payment is made to a resident seller
No requirement of TDS u/s 194-Q on a transaction:
Ø if TDS is deductible under any other provision or
Ø TCS is collectible under section 206C [excluding 206C(1H)]
On a given transaction
Ø either TDS u/s 194Q will apply or
Ø TCS u/s 206C(1H) will apply Both TDS u/s 194Q and TCS u/s 206C(1H) will not apply on the same transaction
In case of potential overlap between the two provisions
TDS u/s 194Q will apply and
TCS u/s 206C(1H) will not apply
Date of Applicability :
This provision will be applicable with effect from 1st July 2021.
Time Limit for deduction of TDS under section 194Q:
Tax to be deducted at the earliest of the following dates:
Ø time of credit of such sum to the account of the seller or
Ø time of payment
Section 206C(1H) reads as under: -
section 206C (1H) which is already part of Income Tax Act which deals which TCS on sales of goods above 50 lakhs @ 0.1% casts responsibility of seller of goods to collect TCS at the time of collection above 50 lakhs.
Section 206 C (1H) Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax:
Provided that if the buyer has not provided the Permanent Account Number or the Aadhar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words "five per cent", the words "one per cent" had been substituted:
Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.
1. Who is liable to deduct TDS under Section 194Q?
A person whose turnover from the business carried on by him during the immediately preceding FY (turnover of FY 2020-21 to be considered for ensuring applicability for FY 2021-22 ) exceeded Rs 10 crores.
2. When is buyer liable to deduct TDS?
A buyer responsible for making payment to a resident seller for purchase of goods is liable to deduct TDS when the value or aggregate value of goods purchased in previous year exceeds Rs 50 Lacs.
3. From when are the provisions of Section 194Q applicable?
The provisions of Section 194 Q are made applicable with effect from July 1st, 2021.
Point of Taxation: TDS shall be deducted (i) at the time of credit of such sum to the account of the seller or (ii) at the time of payment thereof by any mode; whichever is earlier.
TDS is to be deducted even if such amount is credited to “Suspense Account”.
4. What is the rate of TDS?
TDS is to be deducted @ 0.1% of such sum exceeding fifty lakh rupees.
5. What if the seller does not furnish PAN details?
In case seller fails to furnish Permanent Account Number, TDS @ 5% shall be deducted (as per the proviso to Section 206AA inserted by Finance Act, 2021)
6. Are there any exceptions to Section 194Q?
The provisions of Section 194Q are not applicable if
• tax is deductible under any other Section
• tax is collectible under the provisions of Section 206C other than a transaction on which 206C (1H) applies.
7. What if both the sections 194Q and 206C (1H) are applicable to a transaction?
Both the sections are mutually exclusive i.e.; if one will apply other will not be applicable.
8. What constitutes goods?
Goods are not defined under Income Tax Act, 1961. Therefore, we have to refer to most appropriate definition as per other Act or as per General Clauses Act, 1897. Sale of Goods Act, 1932 defines goods as follows:
“‘Goods’ means every kind of movable 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”
9. What are the consequences of non-deduction of TDS under the provisions of Section 194Q?
If buyer fails to deduct and deposit TDS at applicable rates, expenditure to the extent of 30% will be disallowed under Section 40a (ia) of the Act.
10. Do we have to deduct TDS on payment to a seller residing abroad?
If a person being a buyer has to make payment for the goods imported in India, then TDS is not required to be done as this Section is applicable on payments made to resident seller.
11. Is buyer liable to deduct TDS on advance payment made?
Since the advance payment is made against purchase of goods, TDS on same shall be deductible subject to fulfilment of other conditions.
12. Whether the threshold for TDS is to be reckoned for each seller separately?
TDS is to be deducted on payment made to a resident seller for purchase of goods in excess of Rs. 50 lakhs in a year. The limit is to be calculated separately for each seller and for every financial year.
For current Financial Year, even though the section is made applicable from 1st July, 2021, it is interpreted that the threshold limit of Rs. 50 lakhs shall be computed from 1st of April, 2021.
13. Whether TDS u/s 194Q is required to be deducted on the total invoice amount inclusive of GST or only on the value of goods excluding GST?
The provisions of Section 194Q are silent on applicability of TDS on amount of GST. However, on perusal of the Circular 17/2020 dated 29.09.2020, CBDT clarifies TCS under Section 206C (1H) is applicable on amount of sales consideration and no adjustments on account of indirect taxes (including GST) is required to be done.
14. What if the seller has multiple GST Registrations?
If the seller has multiple registrations, the threshold limit shall be computed yearly on PAN India basis and not GSTIN basis. It would mean that if amount is paid/ payable to a seller having multiple units, the aggregate amount payable to all such units shall be considered for the limit of Rs. 50 lakhs.
Needless to mention that section is not applicable on inter branch transfers.
15. Whether Loading & Unloading Charges, Packaging Charges, Freight Charges and other incidental charges form part of consideration for “goods”?
As long as such incidental charges are mentioned in the same invoice, it forms part of intrinsically linked with goods and TDS shall be applicable on total invoice value including such incidental charges.
However, if a separate invoice is issued for the same, no TDS would be applicable as Packing Charges alone would not constitute goods.
16. Whether effect of Credit Notes or Debit Notes is required to be given to identify deductible amount?
Before we advert to answer that, let’s look at provisions of 206C(1H) and corresponding clarification issued by CBDT vide Circular No. 17/2020 in respect of 206C(1H). TCS is collectible on “any amount as consideration for sale of any goods of the value or aggregate of such value…” CBDT mentioned that “no adjustment on account of sale return or discount or indirect taxes including GST is required to be made for collection of tax u/s 206C(1H) since the collection is made with reference to receipt of amount of sale consideration.”
New Section 194Q has been proposed to be inserted which reads as under: -