Chhatrapati Shahu Institute of Business Education

and Research (CSIBER), Kolhapur

Assignment Topic :TDS On Purchase of goods

Name: Sakshi Sandeep Zanjage
Class: MBA II (Business Analytics)
Sub: Direct and Indirect Taxes
Roll Number: 64, Division: C
 TDS ON PURCHASE OF GOODS
Section 194Q of the Income Tax Act was recently introduced vide the Finance Act, 2021.
Section 194Q states, “It is provided for TDS by the person responsible for paying any
sum to any resident for purchase of goods. The rate of TDS is kept very low at 0.1%.

Section 194Q of Income Tax Act: Applicability, TDS Rate, Example, Turnover
Limit
Section 194Q Applies to Whom?
This section applies to a buyer in the following cases:
 A buyer whose turnover or gross receipt or sales in the immediately preceding financial
year was more than Rs 10 crore, and
 A buyer is responsible for making payment of a sum to the resident seller, and
 Such payment is to be done for the purchase of goods of the value/aggregate of the value
exceeding Rs 50 lakh

Example
For a financial year (FY) that ended on March 31, 2021, a buyer whose turnover was more than
Rs 10 crore in that year needs to deduct TDS from their resident seller on the purchase of goods
above Rs 50 lakh in the current financial year 2021-22.

Rate of TDS
Tax is to be deducted at source at the rate of 0.1% on the amount exceeding Rs 50 lakh in
a financial year from a seller from whom the buyer has purchased goods worth more than Rs 50
lakh.

Calculation of TDS
 Purchase above Rs 50 lakh in a financial year from a seller
 TDS to be deducted after deduction of Rs 50 lakh from the total value of purchases
 The threshold limit is Rs 50 lakh, which means a seller-wise deduction in every financial
year
Example
Let’s say a buyer purchases goods worth Rs 20 lakh, three times each from a seller, meaning he
bought total goods of Rs 60 lakh. Now he has to deduct Rs 50 lakh from the total value of goods
purchased. The TDS has to be deducted only on Rs 10 lakh at the rate of 0.1%.
Applicability of Section 194Q
Section 194Q of the ITA is applicable from July 1, 2021. So, the TDS has to be deducted only on
purchases after July 1, 2021. However, the threshold limit of purchase of Rs 50 lakh has to be
taken into account from April 1, 2021.
Example
If a buyer has purchased goods worth Rs 80 lakh from a seller, then he has to deduct the first Rs
50 lakh from it as an initial deduction under Section 194Q and then deduct the TDS on the
remaining Rs 30 lakh at 0.1%. So, the TDS applicable in this case would be Rs 3,000.

Role of GST
 Calculation of turnover: Excluding GST
 Calculation of TDS at the rate of 0.1%: Including GST

When to deduct TDS

The TDS is to be deducted at a time when such amount is credited to the seller or paid to him,
whichever is earlier.
In other words, if you have not paid any advance amount, then you have to deduct this TDS at
the time of purchase of goods. However, if you have made an advance payment, then you have to
deduct TDS immediately.
Non-furnishing of PAN
In cases where a seller fails to furnish a Permanent Account Number (PAN) to a buyer, the TDS
would be deducted at the rate of 5% instead of 0.1%.
It is important to note that without PAN information, the rate of tax applicable in other cases is
20%. In the case of Section 194Q, the TDS rate applicable is 5%.

TDS Deposit Due Date

The TDS is to be deposited on or before the seventh day of the month following the month in
which the TDS is deducted. For example, if the deduction month is January, the due date of
payment is February 7.
However, in the case of March, the TDS can be deposited up to April 30.

TDS Return: Form 26Q

For a quarter ending June 30, September 30, December 31, and March 31, the due date for filing
TDS return is July 31, October 31, January 31, and May 31, respectively.

Exceptions
Section 194Q would not apply in cases where the TDS is to be deducted on the transaction of a
purchase under any other provision of the ITA. For example, there may be a case where a
purchase transaction comes under Section 194O as well as Section 194Q, then TDS would apply
as per Section 194O, which relates to TDS on e-commerce transactions.
However, there is an exception in the case of Section 206C(1H), which provides for the
collection of tax (TCS) by a seller for the amount received as consideration for the sale of goods
if it is greater than Rs 50 lakh in any previous year.
If any transaction on purchase of goods attracts TDS under Section 194Q as well as tax collected
at source under Section 206C(1H), then only Section 194Q shall apply in such a case.

Amendments under Section 194Q of the Income Tax Act

 Under Section 194Q of the Income Tax Act, the deduction of Tax Deducted at Source
(TDS) occurs when any amount is credited to a 'Suspense account' or any other account
that forms part of the books of account of a person who becomes obligated to make the
payment.
 In situations where such transactions occur, the deductions are applicable under both
Section 206C(1H) and Section 194Q of the Income Tax Act. However, specifically for
these scenarios, the deduction is mandated under Section 194Q.
  When a seller is a non-resident, Section 194Q of the Income Tax Act is not applicable to
any purchases made from them. This section specifically pertains to transactions
involving resident sellers.
 If the buyer fails to comply with the tax deduction provisions outlined in the Section
194Q) amendment, they may be subjected to the disallowance of expenditure.
Specifically, the disallowance can amount to up to 30% of the transaction value. It is
essential for buyers to adhere to the prescribed tax deduction requirements to avoid such
consequences.
 Section 194Q applies to purchases of both revenue and capital goods.
 The TDS deduction on purchases exceeding the value of 50 lakhs will be 0.1%. However,
if the seller does not have a PAN, the deduction will be made at a higher rate of 5%.

Section 194Q Declaration Format

In the letterhead of the seller
To,
Buyer’s Name & Address
Sub: Declaration / information for deduction of tax at source u/s 194Q of the Act.
Dear Sir,
This is with reference to your letter dated_________requiring our declaration / information in
regard to deduction of tax at source u/s 194Q of the Act. The information is being provided
hereunder:
1. Since your company is liable to deduct tax u/s 194Q of the Act, you may deduct the tax @0.1
% of sale consideration paid /credited by your company to us on the amount exceeding Rs.50
lacs during the current financial year. We also confirm that we will not take any action to collect
tax at source under section 206C(1H) of the Act w.e.f. 01.07.2021.
2. The Permanent Account Number of our company is . Further, we have duly filed our returns
of income for Assessment Years 2019-20 and 2020-21 as per the information given here under:
Conclusion
Section 194Q is a recent addition to the Income Tax Act, 1961, introduced by the Central Board
of Direct Taxes and effective from July 01, 2021. This section serves as a guideline for buyers
who make purchases from Indian sellers exceeding Rs.50 Lakhs in the previous financial year.
The applicable rate of TDS on such purchases is 0.1% when the PAN card details are provided.