by Shakirul Haque

The Finance Act, 2021, introduced Section 194Q of the Income-tax Act, 1961, which is related to Tax Deducted at Source (TDS) on purchase of goods and not to the provisions of services. According to the section a buyer whose turnover or gross receipt or sales in the immediately preceding financial year was more than Rs 10 crore, then the purchaser needs to deduct TDS from their resident seller on the purchase of goods above Rs 50 lakh.

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.

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%.

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
  • Calculation of turnover: Excluding 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.

Other points to note:

  • If any transaction on purchase of goods attracts TDS under Section 194Q as well as TCS under Section 206C(1H), then only Section 194Q shall apply in such a case. 
  • 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 Income Tax Act, 1961.
  • The purchases here imply the taxable amount exclusive of GST.
  • TDS was deducted and later there was a purchase return, then the tax so deducted can be may be adjusted against the next purchase for the same seller.

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