This podcast is applicable to you only if your turnover in the preceding financial year was more than 10 Crores or if you are dealing with a person whose turnover in the preceding financial year was more than 10 Crores. So, if this is your first year of business, this section will not apply to you as there was no turnover in the preceding financial year.

A new section 194Q has been inserted in the Income Tax Act 1961 by the Finance Act 2021.

The Heading of the section is “Deduction of tax at source on payment of certain sum for purchase of goods”. In simple words, you need to deduct TDS on your purchases.

This section is Effective from 01/07/2021.

So, this section applies if you are a Buyer whose turnover in preceding financial year was more than 10 Crores.

If You are purchasing Goods from Any Resident Seller Exceeding 50 Lakhs in a year then you need to Deduct TDS @ 0.1% of the purchase value.

The words used here are “a resident seller”. This means if the seller is non-resident, 194Q does not apply. In other words, in case of import of goods, this section will not apply in most of the cases as the seller in that case is mostly a non-resident.

Also, it is clarified by the CBDT that the term “Buyer” will not include a non-resident not having a permanent establishment in India.

It is also clarified that if the Income of the recipient is exempt, one need not deduct TDS or collect TCS on such transaction.

Now, you don’t need to deduct TDS on entire purchase value. You will deduct TDS on an Amount exceeding 50 Lakhs.

Will you consider your transactions for April to June 2021 for fifty lakhs threshold? As per the guidelines of CBDT, the answer is in affirmative.

Also, as per CBDT guidelines, you need not deduct TDS on GST portion. However, if you payment is earlier than the credit, then TDS needs to be deducted on entire payment.

After deducting of TDS, you will Pay the same to Government before 7th of next month.

After payment, you will File Quarterly TDS Return to include this purchase transaction on PAN of the Seller.

After filing of TDS Return, you will get form 16A from TRACES website and you need to Issue the same to the Seller.

Now, an interesting case may arise if any other TDS section applies simultaneously with this new section. What will you do?

The new section is clear. You need to Deduct TDS under that relevant section and not under 194Q.

Another interesting case may arise if any other TCS section applies simultaneously with this new section.

Here also the new section is clear. The relevant TCS section will override this new section and 194Q will not apply.

Now, if you remember, section 206C(1H) was introduced in the last budget wherein TCS is required to be collected on Sale of Goods Transaction.

What if TCS on Sale of Goods applies and TDS on purchase of goods applies on the same transaction?

Here also the new section is clear that you need to comply with 194Q TDS and TCS u/s 206C(1H) will not apply.

It is also clarified by the Guidelines of CBDT that if E-Commerce Operator has deducted TDS u/s 194-O, then you need not apply section 194Q on the same transaction.

Section 206AA & 206AB:

If the Seller does not furnish the PAN or has not filed the ITR for last 2 years, then you need to Deduct TDS @ 5% instead of 0.1%.

You will have to bother about other's taxes because if you do not deduct the TDS, 30% of Purchase Value shall be disallowed.

So primary responsibility to deduct TDS is of the Buyer. If the Buyer does not comply with it, he will be penalized.

Now, What is the responsibility of the Seller in case the Buyer fails to deduct TDS u/s 194Q?

In that case, the seller needs to Comply with 206C(1H)

Hopefully it is for the good of all. Thank you!

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