TDS on Purchase of Goods
Currently, TDS has 36 provisions which have been proposed to be increased to 38 provisions in the Finance Bill, 2021.
The government introduced and implemented TCS on Sale of Goods – Section 206C(1H) in Finance Act, 2020 where the seller had to collect TCS from the buyer if the receipts from that customer exceed Rs. 50 Lakhs. On similar lines, a new provision of TDS has been proposed to be inserted where the buyer has to deduct TDS on Purchase of Goods.
Since Sale and purchase are two sides of the same coin i.e. they are lead to the same transaction, these two provisions may create confusion. To remove such confusion we are presenting FAQs on requirement and distinction between Section 194Q and Section 206C(1H).
This is a new provision of Section 194Q that has been made applicable from 1st July 2021.
Ques 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.
Ques 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.
Ques 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%.
Ques 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.
Ques 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.
Ques 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.
Ques 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.
Ques 8. What will be the applicability of TDS where the value of goods and labour is not separately mentioned in the invoice?
Ans: – This is a case of Works Contract where TDS provisions u/s 194C are applicable. Now, as per the Non-applicability provisions of Section 194Q, TDS shall not be applicable on such transactions.
Ques 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.
Ques 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.