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Applicability of Section 194Q of Income Tax Act, 1961

June 14, 2021

Tax Deduction at Source (TDS) on purchase of goods

The Finance Act, 2021, inserted Section 194Q in the Income Tax Act, 1961 (ITA) for deduction of tax at Source (TDS) on purchase of Goods at the rate of 0.1% of the purchase value exceeding INR 5 million. Section 194Q provides for applicability of TDS by person responsible for paying (Buyer), any sum to any resident (Seller) for purchase of goods subject to certain conditions with effect from July 1, 2021.

Analysis of TDS on “Purchase of Goods” under Section 194Q of the ITA

S.No.

Particulars

Conditions
1 Trigger Point
  • Purchase of goods by Buyer
2 Monetary Limit
  • Purchase of goods of the value exceeding INR 5 million during the Financial Year from a single Seller
  • Total sales, gross receipts or turnover of the buyer exceed INR 100 million  during the financial year immediately preceding the financial year in which the purchase of goods is carried out
3 Time of Deduction
  • At the time of credit or payment by the Buyer whichever is earlier. Also, deductible in case of credit to suspense account.
4 Value on which to be Deducted
  • Purchase value in excess of INR 5 million
5 Non-applicability
  • TDS under any other provisions deducted
  • TCS is collectible under Section 206C except under section 206C(1H)
6 Rate
  • 0.1%
  • 5% in case no Permanent Account Number (PAN) or Aadhaar Number is provided by Seller to Buyer (Section 206AA)
  • 5% in case Seller does not file the return for two previous years immediately to the previous year in which tax to be deducted (Section 206AB)
7 Applicability
  • With effect from July 1, 2021

Comparative analysis of Section 194Q and Section 206C(1H) of the ITA

The Finance Act, 2020, inserted Section 206C(1H) of the ITA for collection of tax at source (TCS) at the time of receipt of consideration for sale of goods by the “Seller” from “Buyer” at the rate of 0.1% of the sale consideration exceeding INR 5 million, subject to prescribed conditions with effect from October 1, 2020. The comparative analysis of Section 194Q and 206C(1H) of the ITA is as follows:

S.No. Section 194Q Section 206C(1H)
1
  • Buyer is liable to deduct tax
  • Seller is liable to collect tax
2
  • Applicable on purchase of goods of the value exceeding INR 5 million during the Financial Year from a single Seller
  • Total sales, gross receipts or turnover of the buyer exceed INR 100 million  during the financial year immediately preceding the financial year in which the purchase of goods is carried out
  • Applicable on receipt of consideration for sales of goods exceeding  INR 5 million during the Financial Year from a single Buyer
  • Total sales, gross receipts or turnover of the seller exceed INR 100  million  during the financial year immediately preceding the financial year in which the goods are sold
3
  • To be deducted at the time of credit or payment by the Buyer whichever is earlier
  • To be collected at the time of receipt of consideration from Buyer
4
  • Deducted on purchase value in excess of INR 5 million
  • Collected on sales consideration in excess of INR 5 million
5
  • TDS not applicable in case TDS under any other provisions deducted or TCS is collectible under Section 206C except under section 206C(1H)
  • TCS not applicable in case TDS under any other provisions deducted  or TCS is collectible under any other provision of ITA or export of  goods
6
  • Rate of TDS - 0.1%
  • Rate of TDS - 5% in case no Permanent Account Number (PAN) or Aadhaar Number is provided by Seller to Buyer
  • Rate of TDS - 5% in case Seller does not file the return for two previous years immediately to the previous year in which tax to be deducted
  • Rate of TCS - 0.1% (0.075% for Financial Year 2020-21)
  • Rate of TCS - 1% in case no Permanent Account Number (PAN) or  Aadhaar Number is provided by Buyer to Seller
  • Rate of TCS - 5% in case buyer does not file the return for two previous years immediately to the previous year in which tax to be collected
7
  • Applicable with effect from July 1, 2021
  • Applicable with effect from October 1, 2020
 

Transactions where deduction under Section 194Q of the ITA and collection under section 206C(1H) of the ITA both are applicable:

1- TDS would be deductible under Section 194Q of the ITA by the “Buyer”.

2- In case, “Buyer” fails to deduct TDS, “Seller” will have to collect the TCS on same.

Therefore, primary responsibility rests with “Buyer” to deduct TDS. In other words, the liability of the “Buyer” to deduct tax under Section 194Q of the ITA shall take precedence.

Last updated: 15/06/2021

Article contributed by:

Lakshay Kumar

Sr. Manager – Direct Tax

MBG Corporate Services

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