An overview of Provisions for TDS on Purchase of Goods | Section 194Q

Now while making Purchases of Goods you need to keep in mind for this all new Section 194Q of the Income Tax Act, which is introduced through the Finance Act – 2021, bringing in new TDS provisions on the purchase of goods. This became effective from 01/07/2021. So, let us now dive into the details of this section.

Rules under the new Section 194Q

The buyer of the goods must deduct the TDS of the seller of the goods in case the goods bought by the buyer from a particular seller are in aggregate of Rs.50, 00,000/- or more in annual value. 

This implies that as a buyer of goods, if you buy any goods from “XYZ” and such annual purchases cross Rs.50,00,000/-, then in this case you are required to deduct TDS on purchases exceeding the limit of Rs.50,00,000/-. 

Who is obliged to deduct TDS?

Any person buying goods from another person and the value of such goods exceeds Rs.50, 00,000/- in a year. 

The following persons are not considered as deductors, i.e.; they are NOT expected to deduct TDS:

• New business – This will not apply to the year in which the business is started or incorporated.
• Turnover limit – This will not apply to persons with a gross turnover of less than Rs. 10 crores in a year preceding the goods are bought.
• Non-resident – This does not apply to non-resident buyers. But if such a buyer has a Permanent Establishment (PE) in India, provisions of this section may apply.

Following transactions may not attract – Section 194Q.

This Section is applicable in case of transactions of purchase of goods of more than Rs.50 lakhs. 

However, the below transactions are not covered;

• Purchase transactions of Rs. 50 lakhs or below.
• Transactions related to securities and commodities which are done through recognized stock exchanges and clearing corporations.
• The transactions in electricity, renewable energy certificates, and energy-saving certificates purchased through power exchanges.
• The transactions on which TDS is deductible under any other provisions of the Income-tax Act.

Just like other TDS provisions, this section also has some transaction limits; let us have a look –

Turnover limit for deductor

The turnover threshold for applicability of these provisions is Rs. 10 crores which means one must have total sales or gross receipts of Rs. 10 crores or more in the year preceding the year of a purchase transaction. 

Also, if you have interest income, capital gains income, or rental income in a year, these may aggregate your receipts, but they don’t form your ‘business turnover.’ For the provisions of this section, what is required is ‘business turnover.’ So, except when your business turnover crosses Rs. 10 crores, there is no need to deduct tax on purchases of goods.

The Transaction limit for TDS 

This provision of TDS on purchase of goods is applicable on the purchase transaction only when the value crosses Rs. Fifty lakhs in a year. The TDS is required to be deducted on the amount of purchases exceeding Rs. 50 lakhs. 

These provisions are applicable from 01/07/2021; however, if your transaction limit has crossed Rs.50 lakhs before 01/07/2021, you need to deduct TDS from 01/07/2021 because the transaction limits will be applicable on an annual basis, i.e., from 01/04/2021. Deductor may consider the following points for computing the limit of Rs.50 lakhs.

• He may exclude the amount of GST from the amount of bills paid for
• In case the amount is paid in advance or paid before crediting the accounts of the purchasing party in books of account, TDS may be required to be deducted on amount including GST since it is not practicable to segregate GST from the amount of purchases.
• If payments are undertaken in advance, the TDS must be deducted on a payment basis as the TDS is applicable at the time of credit of the amount in books or payment, whichever is earlier.

Now, after knowing all the limits carried by this section, we want you to understand the most important information required:-

Rate and dates of TDS deposit

The rate of TDS is at 0.1% of the transaction value of goods purchases exceeding Rs. 50 lakhs. This rate maybe 5% if the deductee does not furnish their PAN to the deductor. Deductor should deduct the TDS at the time of the credit of the purchases to the seller’s account in the books of account; this shall remain applicable even if the amount is credited to the suspense account.

The TDS is to be deposited on or before the 7th day of the month subsequent to the month in which TDS is deducted. However, this is to be deposited on or before 30th April of the next financial year for the TDS of March. The due dates of TDS returns are applicable as for other TDS provisions.

Conclusion

So by reading this article we now are aware about on what amount we should deduct TDS while making purchase transaction or are we even required to TDS or not, what are the thresholds? Etc. Also, please note this Section 194Q TDS on Purchase of goods is applicable from 01/07/2021 & the deductor shall deduct the TDS at the time of the credit of the purchases to the seller’s account in the books of account.