TDS on purchase of goods: Section 194Q
TDS on goods purchases would be the first time in income tax history. The Act’s Section 194Q would embrace a wide range of transactions, including product acquisitions.
What is TDS section 194Q?
The government incorporated Section 194Q of the Income Tax Act of 1961 into the Finance Act of 2021. The government’s goal in passing this law is to establish a trail of high-value goods sales and acquisitions. There are a number of other laws that allow for tax deductions at source on various transactions; however, Section 194Q of the Income Tax Act of 1961 makes the deduction of tax on the sale of goods important.
Regulations that have been implemented.
If the products acquired by the buyer from a specific seller have an annual value of Rs.50,00,000/- or more, the buyer of the goods is required to deduct the TDS of the seller of the goods under the new provision – 194Q of the Income Tax Act. This means that if you buy things from ‘X’ and your annual purchases surpass Rs.50,00,000/-, you must deduct TDS on such transactions. On July 1, 2021, this will become law.
TDS deductions are required by whom?
Any person (deductor) who buys products from another person (deductee) for more over Rs.50,000/- in a calendar year. The following people, on the other hand, are not deductors and are not required to deduct TDS:
• New business — This does not include the year the company was established or incorporated.
• Turnover limit – This does not apply to people with a gross turnover of less than Rs. 10 crores in the year before the year in which the things are acquired.
• Non-resident buyers – This does not apply to non-resident buyers. This may not be the case if the buyer has a Permanent Establishment (PE) in India.
What transactions will be affected by this TDS?
This TDS is applied to purchases of commodities valued more than Rs.50 lakhs. This TDS, on the other hand, excludes the following transactions:
1. Deals worth less than Rs. 50 lakhs should be purchased.
2. Securities and commodities transactions are carried out through well-known stock exchanges and clearing houses.
3. Electricity, renewable energy certificates, and energy-saving certificates are all traded through power exchanges.
4. TDS-deducted transactions are subject to other provisions of the Income Tax Act.
Limit on the amount of time that a deductor can be used.
For these TDS provisions, a turnover limit of Rs. 10 crores is applied. This means that in the year leading up to the purchase, you must have total sales or gross revenues of at least Rs. 10 crores. In a given year, you may earn interest income, capital gains income, or rental revenue, but they are not considered “business turnover.” Only if there is a “business Turnover” are these rules applicable. As a consequence, you are not needed to deduct tax on purchases of things until your business income surpasses Rs. 10 crores.
Limit on TDS transactions
Only when the total value of such transactions surpasses Rs. 50 lakhs in a calendar year is TDS paid on purchases of commodities. On purchases over Rs. 50 lakhs, TDS must be deducted. These restrictions take effect on July 1, 2021; however, if your transaction limit was greater than Rs.50 lakhs prior to July 1, 2021, you must commence TDS on July 1, 2021, since the transaction limits will be applied on an annual basis commencing April 1, 2021. When determining the Rs.50 lakh limit, the following variables should be considered.
• You can subtract GST from the total amount of bills you’ve paid.
• TDS may be required on the total amount, including GST, if the amount is paid in advance or before crediting the purchasing party’s accounts in books of account, as it is not possible to separate GST from the number of transactions.
• In the case of advance payments, TDS must be deducted on a payment basis since TDS is due at the time of crediting the amount in books or making the payment, whichever comes first.
Rates and dates for TDS deposits
TDS is charged at a rate of 0.1 percent of the transaction value for products costing more than Rs. 50 lakhs. This rate might be as high as 5% if the deductee fails to give the deductor with his or her PAN. When purchases are credited to the seller’s account in the seller’s books of accounts, TDS should be deducted. Even if the monies are credited to the suspense account, this is still the case.
TDS must be deposited by the 7th of the month following the month in which TDS was deducted. On the other hand, TDS for the month of March must be reported by April 30th of the next fiscal year. The same deadlines apply to TDS returns as they do to other TDS duties.
Synopsis of Section 194Q
Only if the following criteria are satisfied may Section 194’s provision apply:
• The items must be sold by an Indian resident.
• The term “product buyer” must be understood in line with the definition of Buyer set out in Section 194Q’s explanation.
• The quantity or total of values must have been greater than 50 lakhs in any prior year.
• On sums above 50 lakhs, TDS would be imposed at a rate of 0.1 percent.
• If the transaction is subject to TDS and TCS under another provision of the Income Tax Act of 1961, the requirements of this section do not apply.
• If both Section 194Q and Section 206C (1H) apply, Section 194Q takes precedence.
Provision of section 194q of income tax act
In summary, the following are the provisions of Sections 194Q and 206C(1H):
|Particulars.||TDS u/s 194Q||TCS u/s 206C(1H)|
|Person who is accountable.||Goods' 'Buyer.'||Goods' 'Seller.'|
|Meaning.||A 'buyer' is someone whose total sales, gross receipts, or turnover in the previous fiscal year exceeded 10 crore.||A'seller' is someone whose total sales, gross earnings, or turnover in the previous fiscal year exceeded 10 crore.|
|Rate.||0.1 percent of the total cost of the goods purchased||0.1 percent of the total value of the goods sold|
|Threshold Limit||The total purchase price is greater than 50 lakh rupees.||The total sale value is greater than 50 lakh rupees.|
|Deduction/Collection Schedule.||Whenever payment or credit is made, whichever comes first.||When it is received.|
|Exceptions.||When the items are sold by a non-resident;|
When TDS is deductible under other Act provisions and such TDS has been deducted;
TCS is due when any provision of the Income Tax Act (other than 206C(1H)) allows it to be collected.
|Where are products being exported?
Where TCS is recoverable under the Act's other provisions;
If TDS is deductible under any other provision of the Act and it has been deducted;
When the buyer is a commodities importer;
If the buyer is the federal or state government, an embassy, a high commission, or a local government.
Often Asked Questions on TDS on purchase of goods (FAQ)
Q) Whether TDS or TCS should be deducted or collected on the overall sales value of the seller or buyer who has made sales in excess of Rs. 50 lakhs, or simply on the amount in excess of Rs. 50 lakhs?
Ans: TDS/TCS of 0.10 percent of the purchase price/sale consideration paid/received in excess of 50 lakhs is deducted/collected by the buyer/seller under Section 194Q and Section 206C(1H). As a result, TDS/TCS will not be deducted/collected on the available threshold limit of 50 lakhs for any financial year.
Q) What is the rate at which TDS or TCS would be applicable if the buyer’s PAN or Aadhaar is not available?
• If the vendor does not submit a PAN, TDS will be deducted at the amount set out in section 206AA (5%).
• In addition, section 206C(1H) states that if the buyer of the products fails to give its PAN or Aadhar, TCS would be collected at a rate of 1% of the selling price. Section 206C explicitly overrides the provisions of section 206CC (1H).
Q) Is TDS collected when the seller is credited with the purchase price or when it is deducted?
Ans: According to Section 194Q, the buyer must subtract 0.1 percent from the seller’s payments or credit the amount to the seller’s account at the time of payment. As a result, even if the seller receives advance payments, the seller will be liable to deduct TDS.
Q) What does “buyer” mean?
Ans: ‘Buyer’ is defined as a person whose total sales, gross receipts, or turnover from the business carried on by him exceeds ten crore in the financial year immediately preceding the financial year in which the purchase of goods is made, according to section 194Q.
In addition, section 206C(1H) defines a customer as “any person who acquires any Goods,” but excludes:
• a foreign state’s central government, state governments, embassies, high commissions, legations, commissions, and consulates;
• the government of a municipality;
• a person who brings things into India from another country.
Q) What does “seller” mean?
Ans: A person who is a ‘Resident’ of India who sells any products is referred to as a ‘Seller’ under section 194Q.
Section 206C(1H) defines a seller as a person whose total sales, gross receipts, or turnover from his firm exceeded ten crore in the financial year immediately preceding the financial year in which the sale of products is carried out.
Q) Is TDS/TCS required to be deducted/collected on all sales, including service sales?
Ans: TDS/TCS is only deducted/collected on sales of goods, according to sections 194Q and 206C(1H).
Q) When buying software, should TDS be deducted?
Ans: Various court authorities have ruled that packaged/ canned software (off-the-shelf computer software) is considered a ‘good.’ As a result, even if the buyer-entity capitalizes the purchase of canned software (off-the-shelf computer software), it is a purchase of “goods” subject to TDS under section 194Q. Purchases of customized or tailored software may be considered “services” subject to TDS under sections 194J or 194-O.
Q) Is TDS required to be deducted on non-business purchases of jewelry?
Ans: A buyer conducting business whose total sales, gross receipts, or turnover exceeds Rs. 10 crores in the financial year immediately preceding the financial year in which such products are acquired is obligated to deduct tax. There’s no need that the purchases be solely for commercial purposes. As a result, if a person qualifies as a buyer, tax must be deducted even though the transaction is unrelated to his firm. The term goods applies to jewelry since it is a transportable item. The deduction of TDS on the acquisition of jewelry is not specifically exempted under Section194Q. As a result, provided certain additional requirements are met, the tax on jewelry purchases will be deducted.
Q) If all of the provisions of section 206C (1H) are met, is TCS applicable to amounts collected against invoices issued before July 1, 2021?
Ans: TCS would apply to monies collected prior to July 1, 2021 if the requirements set out in 206C (1H) are met. However, from July 1, 2021, the initial applicability of TDS u/s 194Q in the hands of the buyer must be reviewed to see if TDS provisions apply.
Q) When buying anything, how is TDS calculated?
Ans: TDS is deducted at a rate of 0.1 percent on goods purchases exceeding Rs. 50 lakhs. If the deductee fails to provide his or her PAN to the deductor, the rate might rise to 5%. TDS should be deducted when the purchases are credited to the seller’s account in the books.
Q) What makes the numbers 194Q and 206C different?
Ans: Because the buyer’s revenue in the previous fiscal year exceeded Rs 10 crore, Section 194Q applies in this scenario. 206C(1H) does not apply to you. The buyer would deduct TDS of 0.1 percent on the total payment of Rs 8 lakhs. (If the seller’s PAN is accessible, that is.)
Q) 194Q is applicable to which amount?
Ans: The Finance Act of 202 1 added a new section 194Q to the Act, which went into force on July 1, 2002. It applies to any buyer who is liable to pay any payment to a resident seller for the acquisition of any items with a value or aggregate worth of more than fifty lakh rupees in the preceding year.
Q) With an example, how do I deduct TDS from a purchase?
Ans: Assume a customer pays Rs. 90 lakhs for products from an Indian supplier. TDS would be deducted at a rate of 0.1 percent on the Rs 40 lakh since Section 194Q only requires TDS to be deducted on sums above Rs 50 lakh.
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