TDS on Purchase of Goods

Section 194Q

Are you liable to deduct TDS on purchase of goods under the new provisions of Section 194Q?

Finance Minister Nirmala Sitharaman introduced Section 194Q – TDS on purchase of goods in this year’s budget 2021 after introducing Section 206C(1H) – TCS on sale of goods last year.

The primary purpose behind introducing this section is to bring all such persons into the ambit of tax, who are liable to file Income Tax Returns but are not filing, or are not disclosing correct income particulars. This section can be seen as an extension to the provisions of Section 206C(1H) – TCS on Sale of Goods. That is to also cover such assessees which are not falling under section 206(1H).

To avoid taxing the same transaction twice, the Government said, if Section 194Q applies to a specific transaction, where Section 206C(1H) also applies, then Section 194Q shall prevail. Which means TCS u/s 206C(1H) shall not be collected on such transaction as TDS shall be deducted.

This section shall be applicable from 1^st July 2021 to every person whose aggregate annual turnover is greater than 10 crores in the last financial year.

Read on the slide to get insights on this section in easy to understand language!

Let us see few examples to understand this section better:

Example 1: Aman Industries made purchases from Chirag Industries worth Rs. 45 Lakhs till 25^th June 2021. Aman Industries had turnover of Rs. 12 Crores in FY 2020-21. Will TDS u/s 194Q be applicable?

Ans: No! As the threshold of Rs. 50 Lakhs has not crossed!

Example 2: In continuation to above example, what if Aman Industries also made purchases worth Rs. 30 Lakhs from Ravi Solutions Pvt. Ltd.? Will TDS be applicable?

Ans: No! As threshold of Rs. 50 Lakhs is applicable to individual supplier and not on total purchases.

Example 3: HNG Ltd. made purchases of Rs. 1 Crore from CNG Ltd in current year. HNG had turnover of Rs. 8 Crores in FY 2020-21. Will TDS be deductible?

Ans: No! As the turnover of HNG Ltd. Is less than 10 Crore, it doesn’t fulfill the 1^st Condition. Hence, TDS provisions of Sec 194Q shall not be applicable.

Example 4: Rajesh made purchases from Shardul worth Rs. 60 Lakhs this year. His turnover in last FY was 25 Crores. Should Rajesh deduct TDS u/s 194Q for this purchases? On what value?

Ans: Yes! As Rajesh meets both the conditions (1. Having T/O more than 10 crores in Last FY; and 2. Purchases exceeds Rs. 50 Lakhs in Current FY) He has to deduct TDS on the amount exceeding Rs. 50 Lakhs i.e. on Rs. 10 Lakhs (60 – 50 Lakhs).

Is this section applicable to your business? If yes, contact us for filing your TDS & TCS returns on time!