TDS on Purchase of Goods
The Finance Act 2021, has widened the scope of the TDS Chapter in the Income Tax Act, 1961 by introducing a new section namely 194Q dealing with TDS on Purchase of Goods w.e.f. 1st July 2021. This new TDS provision is just a replica of section 206C(1H) of the Income Tax Act, 1961 introduced by the Government with effect from 1st October 2020. The only basic difference between these two sections is that the responsibility of deduction of tax will lie upon the buyer whereas the responsibility of collecting tax will lie upon the Seller.
Currently, TDS has 36 provisions which have been proposed to be increased to 38 provisions in the Finance Bill, 2021.
Analysis of the section
As per newly introduced Section 194Q, TDS needs to be deducted by the buyer of goods (whose total sales, gross receipts or turnover exceeds Rs.10 Crore during the immediately preceding financial year in which purchase of goods is carried out) at a rate of 0.1 percent on payment made to the resident seller or credit to his account, whichever is earlier exceeding Rs 50 lacs in the financial year. Moreover, if the resident seller has not provided a Permanent Account Number (PAN) or Aadhar Number to the buyer, then the TDS would be deducted at 5 percent instead of 0.1 percent.
This is a new provision of Section 194Q that has been made applicable from 1st July 2021.
Q-1. What is the meaning of ‘Goods’ under this provision?
Ans: – ‘Goods’ are not defined anywhere under the Income Tax Act. This provision also does not provide clarity as to ‘What are goods?’ Since, no specific definition is provided, therefore, all goods in whichever form are covered under this provision.
Q-2. When shall the TDS be deducted?
Ans: – TDS shall be deducted when: –
- The payment/ purchase is made from the Resident.
- The purchase is made in excess of Rs. 50 Lakhs in FY.
- At the time of credit to the account of the seller or at the time of payment whichever is earlier.
Q-3. Who is liable to deduct TDS under Section 194Q?
Ans: – TDS shall be deducted by the buyer having turnover exceeding 10 Crore in the Financial Year preceding the Financial Year in which the purchase is made at the rate of 0.1%.
Q-4. Whether TDS shall be deducted on the GST component also?
Ans: – As per Circular 23/2017 dated 19.07.2017, TDS shall not be deducted on GST Component.
Q-5. Whether TDS shall be deducted when the Seller is a Non-Resident i.e. in case of Import of Goods?
Ans: – As Section 194Q(1), TDS shall be deducted when the buyer is liable to pay any amount to a resident. Hence, in case the seller is a Non-resident no TDS shall be deducted under this provision and TDS shall be applicable u/s 195.
Q-6. Whether TDS shall be deducted if the Buyer is a Non-Resident i.e. in case of Export of Goods?
Ans: – As per the plain reading of the text, liability of TDS deduction is on Non-Resident also. But the government may provide for exemption as this is not practically possible.
Q-7. Whether TDS is applicable on Motor Vehicles of value less than 10 Lakhs?
Ans: – As per Circular 17/2020 dated 29.09.2020, it was clarified that in respect of Motor Vehicles valuing less than 10 Lakhs, TCS would be applicable u/s 206C(1H). Applying the same principle, TDS shall be applicable on the purchase of Motor Vehicles valuing less than Rs. 10 Lakhs.
Q-8. What is the applicability of TDS in case the invoice does not mention the value of goods and labour separately?
Ans: – This relates to Works Contract wherein TDS provisions u/s 194C are applicable. Now, as per the Non-applicability of Section 194Q provisions, on such transactions – TDS shall not be applicable.
Q-9. What will be the treatment of advance payment made to the seller?
Ans: – Section 194Q states that TDS shall be deducted at the time of payment or credit whichever is earlier, so TDS shall be deducted at the time of advance payment. One condition one has to keep in mind is the intention of the advance. If the advance is paid with the intention of adjusting in future purchases then TDS shall be deducted, but if the intention is of loan or deposit then no TDS shall be deducted.
Q-10. What will be the treatment of advance payment made before 01.07.2021 but purchases made after 01.07.2021?
Ans: – Since this section is applicable w.e.f. 01.07.2021, therefore if any trigger event is before 01.07.2021 no TDS shall be deducted.