The Government of India(GOI) through The Finance Act, 2021 rolled out the new Section 194Q in the Income Tax Act, 1961 for providing TDS on purchase of goods w.e.f. 1st July’ 2021.
Basically, this new section 194Q of the IT Act mandatorily requires a buyer who is responsible/liable to pay any sum to any resident (i.e. seller) for the purchase of goods having a value exceeding Rs. 50 lakh in any year, to deduct tax at source equals 0.1% of such sum exceeding Rs. 50 lakh. The I-T Department has made the provision of this section providing TDS on purchase of goods applicable with effect from 1st July 2021.
The Finance Ministry rolled out similar provision Section 206C(1H) for TCS last year vide the Finance Act, 2020, and thus the Section 194Q is very similar to the provisions of Section 206C(1H) of the Act.
In this blog, we will discuss in detail regarding provisions of Section 194Q of the IT Act.
Overview: Section 194Q of the IT Act
For the sake of reference relevant portion of Section 194Q of the IT Act is reproduced as under
On analyzing the provisions of section 194Q of the Act, the same can be briefed as under:
A buyer shall be liable to deduct TDS on the purchase of goods, if
- Total value of goods purchased exceeds50 Lakh.
- Gross sales/ receipt/ turnover of buyer’s business exceeds 10 Crore in a financial year immediately preceding the year in which goods are purchased that is the financial year under consideration.
- Supplier shall be a Resident of India.
What would be the Point of Deduction of TDS under section Section 194Q of the IT Act?
The buyer is required to deduct TDS under section 194Q of the IT Act up to earlier of the following dates –
- When the amount is credited into the seller’s account, or
- When the amount is paid to the seller for the specified goods purchased.
What is Rate of TDS for the purpose of Section 194Q of the IT Act?
In case when the seller has provided his PAN or Aadhaar, the specified buyer is required to deduct TDS on the goods purchased under Section 194Q @0.1% of the purchase value above Rs.50 Lakh. However,if the the seller has not provided his PAN or Aadhaar, TDS would be deducted @ 5%.
What is the meaning of “goods” for the purpose of Section 194Q of the IT Act?
The term ‘goods’ is very wide in its scope and nature. However, The Income Tax Act has not defined the term “goods” and In common parlance, we can say that any things or products which come into the market are goods.
Now, the question comes that what is the meaning & definition of the term goods in the absence of any definition of goods under the Income Tax Act. Thus, we have to interpret the meaning of goods from the definitions provided under the two laws relating to goods that are Sale of Goods Act, 1930 and Central Goods and Services Tax, 2017.
Since the CGST Act deals with the tax on supply of goods while Sale of Goods Act deals with selling of goods. Therefore, we can say the definition of Goods provided by the Sale of Goods Act, 1930 can be referred for Section 194Q of the IT Act. Consequently, goods contain movable properties only.
Implications of not complying Section 194Q of the IT Act
According to Section 40a(ia) of the IT Act, 1961, if a buyer fails to deduct TDS as per section 194Q of the IT Act then he shall not be allowed to claim expenditure incurred on purchase of goods up-to 30%.
When specified buyer is not required to deduct tax at source under section 194Q of the IT Act?
A specified buyer is not required to deduct TDS under Section 194Qof the IT Act in the following 2 conditions –
- When the TDS is required to be deducted under any other provision of the I-T Act, or
- When the TCS is required to be collected under section 206C of the Act, 1961, excluding the transactions on which TCS is required to be collected under Section 206C(1H) of the IT Act.
Applicability of either of Section 194Q and Section 206C (1H)of the IT Act
The most frequently asked question related to section 194Q is that who shall be liable for TDS or TCS on a transaction which is covered under both Sections 194Q and Section 206C(1H)?
Section 194Q clause 5 clearly answers this. It states that when a buyer is liable to deduct TDS on a transaction under Section 194Q then the seller shall not be liable for the collection of tax on the same transaction under Section 206C(1H) of the IT Act. However, when the buyer fails or defaults to deduct TDS as per section 194Q of the IT Act then the responsibility to collect the tax shall get shifts to the seller under section 206C(1H) of the IT Act.