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As per the Finance Act, 2021, Section 194Q of the Income-tax Act, 1961 provides for Tax Deducted at Source (TDS) on the purchase of goods and not on the supply of services.
This section generally applies to buyers who meet the following conditions:
For an F.Y. that ended on March 31, 2021, a buyer whose turnover exceeded Rs 10 crore in that year is required to deduct TDS from a resident seller on purchases of goods exceeding Rs 50 lakh during F.Y. 2021-22.
TDS is deducted at 0.1% on the amount exceeding Rs 50 lakh in a financial year from a seller from whom the purchaser has bought goods worth more than Rs 50 lakh.
If a purchaser buys goods worth Rs 20 lakh three times from the same seller, the total purchase value would be Rs 60 lakh. TDS will be deducted only on the amount exceeding Rs 50 lakh. Therefore, TDS will be calculated on Rs 10 lakh at a rate of 0.1%.
TDS under Section 194Q is applicable from July 1, 2021, as per the Income Tax provisions. Therefore, TDS is deducted on purchases made on or after July 1, 2021. However, the Rs 50 lakh purchase threshold is considered from April 1, 2021.
If a purchaser buys goods worth Rs 80 lakh from a seller, the first Rs 50 lakh is considered for the threshold, and TDS is deducted on the remaining Rs 30 lakh at 0.1%. In this case, the TDS applicable would be Rs 3,000.
TDS will be deducted at the time when the amount is credited to the seller’s account or paid to the seller, whichever is earlier.
If no advance payment has been made, TDS is generally deducted at the time of credit of the amount to the seller’s account.
If an advance payment is made to the seller, TDS is deducted at the time of making the payment.
Where a vendor fails to furnish PAN to the purchaser, TDS under Section 194Q will be deducted at the applicable higher rate of 5% instead of 0.1%.
TDS must generally be deposited on or before the 7th day of the month following the month in which the TDS was deducted. For example, if the deduction is made in January, the TDS payment is generally due by February 7.
For deductions made during March, the TDS can generally be deposited up to April 30.
For quarters ending June 30, September 30, December 31, and March 31, the due dates for filing TDS returns are generally July 31, October 31, January 31, and May 31, respectively.
Section 194Q does not apply where TDS is required to be deducted under another provision of the Income Tax Act. For example, if a transaction is covered by both Section 194O and Section 194Q, TDS may be applicable under Section 194O in relation to e-commerce transactions.
In the case of Section 206C(1H), which provides for the collection of tax (TCS) by a seller on the sale of goods where the applicable threshold is exceeded, Section 194Q takes precedence where the conditions for both provisions are satisfied.
If a purchase transaction attracts TDS under Section 194Q as well as TCS under Section 206C(1H), only Section 194Q shall apply in such a case.
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