FAQs on TDS under section 194Q of Income Tax Act, 2021

FAQs on TDS under section 194Q of Income Tax Act, 2021

 

The Ministry of Finance vide Circular No. 13/2021 dated 30^th June 2021 has given guidelines on Section 194Q of Income Tax Act, 2021 which is applicable from 1^st July 2021.

The Finance Minister in her budget speech 2021 has inserted the new section 194Q in the Finance Act, 2021.

Applicability, guidelines, and other criteria are tabulated below.

Applicability	It applies to any ‘buyer who is responsible for paying any sum to any resident seller for purchase of any goods of the value or aggregate of value exceeding fifty lakh rupees in any previous year.
Effective Date	01-07-2021
Who is required to deduct the TDS?	Buyer
Rate of TDS	0.1%
Threshold limit	Rs. 50 Lakhs
When TDS is required to be deducted?	At the time of credit of such sum to the account of the seller or at the time of payment, whichever is earlier,
Who is Buyer?	Person whose total sales or gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out. So Turnover, total sales or gross receipts for FY 2020-21 is to be considered to check the applicability of Section 194Q.
Manner of calculating the threshold limit	The threshold of fifty lakh rupees is with respect to the previous year. Calculation of sum for triggering TDS under section l94Q shall be computed from 1st April, 2021. So, if a person being buyer has already credited or paid fifty lakh rupees or more up to 30th June 2021 to a seller, the TDS under section 194Q shall apply on all credit or payment during the previous year, on or after 1st July 2021 to such seller.
Is TDS applicable on GST amount also?	TDS shall be deducted at source on the amount paid or payable without including such GST component.
Whether Purchase returns are also to be considered to calculate the TDS?	Purchase Returns if any shall be reduced from the amount payable and TDS is required to be deducted only on the Net amount. In some of the cases, before purchase return happens, the TDS amount have already been deducted under section 194Q of the Act on that purchase. If that is the case tax deducted may be adjusted against the next purchase against the same seller.
Whether TDS is required to be made on advance payments too?	Yes
Whether tax is to be deducted when the seller is a person whose income is exempt?	It is clarified that the provisions of section 194Q of the Act shall not apply on purchase of goods from a person, being a seller, who as a person is exempt from income tax under the Act (like person exempt under section 10) or under any other Act passed by the Parliament (Like RBI Act, ADB Act etc.).
Whether provisions of section 194Q of the Act shall apply to buyer in the year of incorporation?	No. Since the condition of calculating the turnover is with respect to previous financial year.
Section 206C(1H) vis-a-vis Section 194Q	TDS under section 194Q is to be done for purchase transactions as per the criteria mentioned in that section. There may be chance that the same transaction is also subject to TCS under section 206C (1H) for the seller. It has been clarified that if a same transaction is subject to TDS u/s 194Q, the seller is not required to collect TCS u/s 206C(1H).   Practical challenge: The seller before raising an accounting invoice has to be communicate with the buyer and understand whether the TDS u/s 194Q is applicable to the buyer. If TDS u/s 194Q is applicable to the buyer, then the seller is not required to collect TCS on sale of goods. If, TDS u/s 194Q is not applicable to the buyer then, seller has to collect the TCS.
Applicability of TDS u/s 194Q on services availed.	TDS u/s 194Q is only on “Purchase of Goods”. So, purchase of services are not considered.
Whether TDS u/s 194Q is applicable on purchase of goods which are capitalized	TDS is to be done whether purchase is revenue or capital in nature.

 

Disclaimer: The circular is presented in a summarized manner. The original circular can be accessed through the link given below. Any financial decisions are to be made only with reference to the circular link given below.

https://www.incometaxindia.gov.in/communications/circular/circular_13_2021.pdf

 

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CA Sanjay R Shetty

+91 77602 52581