Applicability of TDS & TCS on sale of Goods by Government and its Entity
Scope of TDS compliance has been widened 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 business in 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 have one such issue in this article.
Section 194Q is not applicable if the TDS/TCS is done under any other section of the Income Tax Act.
Whether section 194Q & Section 206C(1H) will be applicable on purchase and sale by Government, PSU, etc or not is the question.
It is worthwhile to revisit section 194Q which reads as under:
Deduction of tax at source on payment of certain sum for purchase of goods.
194Q. (1) Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent of such sum exceeding fifty lakh rupees as income-tax.
Explanation.—For the purposes of this sub-section, “buyer” means a person whose total sales, 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, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
(2) Where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
(3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
(4) Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and the person liable to deduct tax.
(5) The provisions of this section shall not apply to a transaction on which—
(a) tax is deductible under any of the provisions of this Act; and
(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies
Finally, CBDT has clarified the issue vide F.No. 3701422/56/2021-TPL Dated 25/11/2021. The relevant part (Para 5.4) of the said circular is produced as under:
5.4 Applicability of the provisions of section 194Q in ease of department of Government not being a public sector undertaking or corporation
5.4.1 There have been representations from department of the Government (both Central Government and State Government), to enquire if such department is required to deduct tax under the provisions of section 194Q of the Act.
5.4.2 As per the provisions of section 194Q, tax is to be deducted by a person, being a buyer, whose total sales, gross receipts or turnover from business carried on by that person exceed ten crore rupees during the financial year immediately preceding the financial year in which the goods arc purchased by such person. Thus, for a person to be considered as a buyer for the purposes of section 194Q of the Act, following conditions are required to be fulfilled:
(a) Such person shall be carrying out a business/ commercial activity:
(b) The total sales, gross receipts or turnover from such business/ commercial activity shall be more than 10 crores during the financial year immediately preceding the Financial year in which goods are being purchased by such person.
In case of any Department of the Government which is not carrying out any business or commercial activity, the primary requirement for being considered as a ‘buyer’ will not be fulfilled. Accordingly, such an organization will not be considered as ‘buyer’ for the purposes of section 194Q of the Act and will not be liable to deduct tax on the goods so purchased by them. However, if the said department is carrying on a business/commercial activity, the provision of section 194Q of the Act shall apply subject to the fulfilment of other conditions.
5.4.3 issue has been raised in case where any department of the Government will be considered as a ‘seller’ for the purposes of deduction of tax under section 194Q of the Act. In this regard, it is hereby clarified that for the purposes of section 194Q, Central Government or State Government shall not be considered as ‘seller’ and no tax is to be deducted by the buyer, in cases where any Department of Central or State Government are sellers of goods.
5.4.4 In connection with above, it is further clarified that any other person, such as a Public sector Undertaking or corporation established under Central or State Act or any other such body, authority or entity, shall be required to comply with the provisions of section 194Q and tax shall be deducted accordingly.
In short,
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In case of any Department of the Government which is not carrying out any business or commercial activity, the primary requirement for being considered as a ‘buyer’ will not be fulfilled and hence section n194Q will not be applicable.
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For the purposes of section 194Q, Central Government or State Government shall not be considered as ‘seller’ and no tax is to be deducted by the buyer, in cases where any Department of Central or State Government are seller of goods.
