TDS on Purchase of Goods U/s 194Q: Issues & Concerns

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TDS on Purchase of Goods U/s 194Q: Issues & Concerns

Scope of TDS compliance is all set to widen with effect from 1st July 2021 as “Purchase of Goods” will also be subject to TDS. Every buyer whose total sales, gross receipts or turnover from the businessin the preceding financial year exceeds Rs. 10 Cr would be required to do TDS if the amount of purchase from any person exceeds Rs. 50 Lakh. There are lots of issues and concerns as far as this new provision is concerned. Let us discuss about it:

  1. Date of Applicability:
    The new TDS provision is applicable w.e.f. 1st July 2021. Hence, transactions till 30th June 2021 would be out of the purview of this section. The applicability in the FY 2021-22 would be as under:
Turnover of the Buyer for FY 2020-21 Purchase  till 30/06/2021 Purchase   on or after 01/07/2021 TDS @ 0.10% required on amount of Remarks
Rs. 11 Cr Rs. 90 Lakh 20 Lakh Rs. 20 Lakh Sales done till 30/06/21 are not liable for TDS.
Rs. 11 Cr Rs. 20 Lakh Rs. 90 Lakh Rs. 60 Lakh Sales up to Rs. 50 Lakh are not liable for TDS. Sale till 30/06/2021 was Rs. 20 Lakh and so Rs. 30 Lakh out of sale of Rs. 90 Lakh will not be liable for TDS.
Rs. 9 Cr Rs. 90 Lakh Rs. 90 Lakh 0 Buyer turnover in the preceding year is less than Rs. 10 Cr and hence new TDS provision is not applicable.

Every year, buyers would be required to check the turnover of the preceding year to ascertain the applicability of section 194Q.  Further, the limit of Rs. 50 Lakh is required to be ascertained for every current financial year and the threshold limit is applicable on yearly basis.

  1. What if the seller is also doing TCS U/s 206C(1H):
    TCS provision by way of section 206C(1H) was introduced in the last year which requires every seller of goods with turnover in the preceding year exceeding Rs. 10 Cr to do TCS on sale if the receipt from any person against sale of goods exceeds Rs. 50 Lakh. Many taxpayers are under the wrong notion that no TCS U/s 206C(1H) shall be required after insertion of TDS provisions u/s 194Q. This is not so. Old section 206C (1H) has not been altered & has remained intact. The difference between section 206C(1H) & 194Q is as under:
  Section 206C(1H) Section 194Q
Applicable to Seller of Goods Buyer of Goods
Point of doing  TCS/TDS On Receipt of Money At the time of payment or credit whichever is earlier
Simultaneous Compliance? TCS is not required to be done if the buyer has done TDS U/s 194Q TDS will be required even if the seller has done TCS in the transaction
Due date of Deposit Within 7 days from the end of the month
(30 days for TDS of March month)
 Within 7 days from the end of the month
Due date of filing TDS /TCS Return 15 days after end of quarter
(By 15th May for the 4th Quarter)
1 month after end of quarter (2 months in case of return for 4th Quarter)

Let us understand the applicability of above with example

T/o of buyer in preceding FY T/o of Seller in preceding FY Transaction Amount Section Applicable
Rs. 11 Cr Rs. 12 Cr Rs. 51 Lakh TDS would be required u/s 194Q on Rs. 1 Lakh.
TCS U/s 206C(1H) is not required as buyers would be doing TDS. (See Note I)
Rs. 11 Cr Rs. 11 Cr Rs. 49 Lakh As the transaction amount is less than Rs. 50 Lakh, nothing would be applicable.
(See Note II)
Rs. 11 Cr Rs. 9 Cr Rs. 51 Lakh TDS U/s 194Q is required by the buyer & seller won’t be liable for doing TCS.
Rs. 9 Cr Rs. 11 Cr Rs. 51 Lakh TCS U/s 206C(1H) is required by the seller as Buyer will not be liable for TDS.

Note:
I. The seller needs to ensure that the buyer is doing TDS. If the buyer fails to do it then the Seller would be required to ensure the compliance with the TCS provision. It is advisable for the seller to obtain the declaration from the buyer that they will be doing the TDS U/s 194Q so as to get some relaxation from TCS compliance in such cases. The format of declaration can be accessed at www.thetaxtalk.com.
II. Though sales in the current financial year is less than Rs. 50 Lakh, TCS compliance may be required by the seller if the “Receipt” from the buyer exceeds Rs. 50 Lakh. In short, if the buyer receives an amount against sale consideration of earlier year as well then that amount would also be required to be considered for TCS compliance.
III. There are multiple situations, permutations & combinations like this and so the taxpayers need to be alert & observant to ensure the TDS/TCS compliance discussed above.

  1. TDS u/s 194Q is not required if the transactions is subject TCS
    (a) U/s 206C(1) towards sale of liquor, tendu leaves, forest produce, scrap, etc
    (b) U/s 206C(1F) towards sale of Motor vehicles exceeding Rs.10 lakhs in value or
    (c) U/s  206C(1G) towards Liberalised Remittance Scheme (LRS) Transactions. One should carefully note that there is no exclusion provided for TCS U/s 206C(1H).
  2. TDS shall be deducted @ 0.1%. Also if PAN is not available, then TDS shall be required @ 5% [Section 206AA].
  3. What if TDS is not done u/s 194Q?
    Non-deduction of tax at source will result in disallowance u/s 40a(ia) to the extent of 30% of such amount. Further, buyer in such case would also be deemed to be an “Assessee in default” u/s 201 and may be liable for interest and penalty along with the amount of TDS.
  4. Purchase & Sale from the same party (Barter system):
    TDS liability will be there even if the buyer is not making any payment against its purchase but adjusting the amount against its sale to the same party.
  5. Loading / Unloading, Freight, Insurance, etc:
    If these amounts are reflected on the invoice then it may be considered as part of purchase value and may accordingly be liable for TDS. The amount of GST is not liable for TDS U/s 194Q. Suitable clarification from CBDT would smoothen the process of TDS compliance in such cases.
  6. Impact of Credit/Debit Notes:
    a) A buyer has purchased a goods of Rs. 60 lakh and the amount is settled for Rs. 55 Lakh by issuing a debit note of Rs. 5 Lakh. TDS liability gets triggered at the time of payment or debit whichever is earlier & so the moment Rs. 60 Lakh is debited to the account of the seller, TDS liability is attracted. In such a case, the TDS would be required on Rs. 60 Lakh as. Issue of debit note of Rs. 5 Lakh may not result in reversal of TDS entry done earlier.
    b) If the discount is given in the bill itself then the TDS would be required on an amount after discount only.
  7. Purchase of Immovable Property:
    TDS is applicable on purchase of “Goods”.  Since, immovable properties are not considered as goods, it is not liable for TDS u/s 194Q. It may be liable for TDS U/s 194-IA if the value of such immoveable property is more than Rs. 50 lakhs.
  8. Purchase of Software:
    Canned (Off the shelf) software or Readymade software (without customization) have been defined as goods by the SC in Tata Consultancy Services v State of AP and so it will be liable for TDS u/s 194Q.

Conclusion:
Though the provision looks simple, its compliance and reconciliation may not be so. There are various occasions and instances wherein the same transactions may be subject to the TDS as well as TCS due to difference in the trigger point of taxation for buyer & seller. It is advisable that the TCS provision u/s 206C(1H) be scrapped in totality for the ease of business.

[Readers may forward their feedback & queries at nareshjakhotia@gmail.com.

Other articles & response to queries are available at www.theTAXtalk.com]

2 Comments

  1. June 17, 2021
    GANESH SHETTY

    Excellent. Than you for explaining the complexity with simple examples.

    Reply
  2. June 23, 2021
    Adv Vipul Lukka

    Excellent. Very well analysed.

    Reply

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