TDS on purchase of goods-Section 194Q of the Income Tax Act, 1961

 

TDS on purchase of goods-Section 194Q of the Income Tax Act, 1961

From -01-07-2021, if any person whether from India or outside India is purchasing any goods of more than Rs. 50 lacs in a year from a single seller in India, they have to deduct TDS on such purchase @0.1% on amount exceeding Rs. 50 lacs and deposit it to the Government.

Let us discuss the general questions on section 194Q as below.

  1. From when TDS u/s 194Q is applicable?

It is applicable from 01-07-2021.

  1. Who has to deduct TDS u/s 194Q?

The buyer of goods has to deduct TDS if he fulfills both the following two conditions:

  1. Turnover/Gross Receipt/sales > Rs. 10 cr. in the year preceding to the year in which purchase is made and
  2. If the total purchase of goods from a single seller in India> 50 lacs during any year.
  3.  From when the total purchase criteria shall be considered?

Although TDS deduction u/s 194Q is applicable from 01-07-2021, total purchase shall be aggregated from 01-04-2021 to 01-04-2022 for F.Y. 2021-22.

  1. Whether non-residents also have to deduct TDS u/s 194Q?

Yes. If any non-resident is purchasing goods of more than Rs. 50 lacs form a single seller in India, they have to deduct TDS on it.

  1. Whether TDS has to be deducted on purchase of goods made outside India?

No. TDS u/s 194Q is required to be deducted on purchase of goods from Indian resident seller.

  1. What is rate of TDS Deduction u/s 194Q and on what amount?

Rate-0.1%

Amount- On amount of purchase above Rs. 50 lacs

Examples:

Sl. No.

Scenario

TDS

1.

Total purchase made from X= Rs. 55 lacs

TDS= 5 lacs *0.1% =Rs.500 (i.e. on 55 lacs- 50 lacs)

2.

Total Purchase made from X= RS. 45 lacs

No TDS (since purchase amount is not exceeding Rs. 50 lacs)

3.

Total Purchase from X=Rs. 45 lacs

Total Purchase from Y= Rs.55 lacs

For X

No TDS (since purchase amount is not exceeding Rs. 50 lacs)

For Y

TDS=5 lacs *0.1% =Rs.500 (i.e. on 55 lacs- 50 lacs)

 

  1. What shall be rate of TDS u/s 194Q if seller does not provide PAN No.?

In such cases the rate of TDS shall be 5% instead of 0.1%. Refer Section 206AA(1)-second proviso.

  1. Which form of TDS Return shall apply for TDS u/s 194Q?

Form 26Q- for TDS on other than salary.

  1. What is the consequence of failure to deduct TDS u/s 194Q?

30% of amount on which TDS is not deducted shall be disallowed u/s 40(a)(ia) of the Income Tax Act, 1961, provided the TCS has also been not collected by seller u/s 206C(1H) on such purchase.

  1. IF TDS is already deducted on the same transaction in any other section, whether again TDS u/s 194Q has to be made?

No. Firstly, it has to be seen whether TDS under any other section is also applicable. If any other section is applicable on same transaction then that other section apply and not Section 194Q. Refer Section 194Q(5)(a).

Example- On purchase of immovable property, TDS is deductible u/s 194IA , on purchase of software TDs is deductible under section 194J, therefore in these case section 194Q shall not apply.

  1. If TCS is collectable by seller on sell of any goods u/s 206C, whether in that case also TDS u/s 194Q has to be made?

No. On some goods listed in section 206C subsection (1), (1F) and (1G), seller has to collect TCS on sale. Firstly, it has to be seen whether TCS is applicable on any goods, if it is applicable, TDS u/s 194Q is not applicable on such goods. Refer Section 194Q(5)(b).

Example– Sale of Alcoholic Liquor for human consumption, Tendu leaves, Timber, any other forest produce or tendu leaves, Scrap, Minerals, being coal or lignite or iron ore, motor vehicle, and others as stated therein section 206C, the seller is liable to collect TCS on such sale. On purchase of these goods, TDS u/s 194Q is not applicable.

  1. On goods other than referred to in FAQ no. 11 above, similar requirement is there for collection of TCS by seller on sale of goods exceeding Rs. 50 lacs in a F.Y, whether in that case also TDS u/s 194Q has to be made?

There is double requirement of TCS collection by seller u/s 206C(1H) on sale of goods exceeding Rs. 50 lacs as well TDS deduction by buyer u/s 194Q on purchase of goods exceeding Rs. 50 lacs. This is in respect of goods other than listed in sub section (1), (1F) and (1G) of Section 206C.

Firstly, liability is on the buyer to deduct TDS u/s 194Q and if he had deducted then the seller is not required to collect TCS on similar transaction. Refer Second proviso to section 206C (1H)

However, if buyer has failed to deduct TDS u/s 194Q, then it is the liability on seller to collect TCS on such sale. Refer second proviso to section 206C(1H)

Therefore, either TDS u/s 194Q shall apply or on its failure only TCS u/s 206C(1H) shall apply. Both shall not apply on similar transaction.

  1. Whether TDS u/s 194Q shall also be deducted on purchase of capital goods?

The definition of goods is not defined under Income Tax Act, 1961. Therefore, until any clarification comes in this respect, it may include capital goods as well.

  1. Whether on purchase of immovable property TDS shall be deducted u/s 194Q?

No. On purchase of immovable property TDS is deductible u/s 194IA, therefore excluded form section 194Q. Refer Section 194Q(5)(a). This is despite of any dispute whether immovable property is goods or not.

  1. Whether on purchase of electricity TDS shall be deducted u/s 194Q?

Various case laws pronounced that electricity is a good, therefore might come under the ambit of section 194Q.

However, for TCS collection u/s  206C(1H), CBDT has clarified that TCS is not applicable for sale of electricity. The same may also be applied for TDS on electricity until any further clarification with a risk of litigation on it.

  1. Whether section 194Q is applicable on purchase of software?

No, on use of computer software TDS is deducted u/s 194J as royalty, therefore can be said to out of ambit of section 194Q. Refer Section 194Q(5)(a). This is despite of fact of dispute whether Software will come under goods or not.

Note: Clarifications may also come by the CBDT on section 194Q, till then clarification under Circular No. 17 of 2020 on TCS collection u/s 206C(1H) on similar transaction, may also apply for section 194Q.

 

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