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Understanding New TDS Provision on Purchase of Goods u/s 194Q with Practical Examples

Team TaxAaram has prepared some practical illustrations for clear and easy understanding of the new provision of TDS on purchase of goods, contained in section 194Q. These are shared below for ready reference and benefit of our Readers.

Practical Examples on Section 194Q

1. Mr. Goodly purchases goods worth Rs. 15 lakhs on 30.6.2021. He purchases goods worth Rs. 50 lakhs on 1.7.2021. His turnover in previous financial year 2020-21 was 11 crores. 

Is Mr. Goodly required to deduct TDS u/s 194Q & if yes, on what amount & at what rate?

Ans. Since turnover of Mr. Goodly in previous FY 2020-21 was in excess of Rs 10 cr & the value of goods purchased by him in current FY 2021-22, exceeds Rs. 50 lakhs (15 lakhs plus 50 lakhs= 65 lakhs), so, Mr. Goodly is liable to deduct TDS @0.1% u/s 194Q of Rs. 1500 on purchases of Rs 15 lakhs. (65 lakhs - exemption limit of Rs 50 lakhs). Purchases of Rs 15 lakh on 30.6.2021 will be taken into account in determining the threshold limit of Rs 50 lakhs for FY 2021-22 but TDS is to be deducted only on purchases made on or after 1.7.2021.

2. If in above example, Mr Goodly purchases goods worth Rs. 20 lakhs on 30.6.2021 & 60 lakhs on 1.7.2021, then Mr Goodly is liable to deduct TDS @0.1% of Rs. 3000, on purchases of Rs. 30 lakhs.

3. Suppose, Mr Goodly purchases goods worth Rs. 60 lakhs on 30.6.2021 & 50 lakhs on 1.7.2021, then Mr Goodly is liable to deduct TDS @0.1% of Rs. 5000, on purchases of Rs. 50 lakhs.

4. If, in above example, Mr Goodly purchases goods worth Rs. 60 lakhs on 30.6.2021 & 40 lakhs on 1.7.2021, then Mr Goodly is liable to deduct TDS @0.1% of Rs. 4000, on purchases of Rs. 40 lakhs.

5. If Mr. Goodly has purchased goods from Mr. Selldom worth Rs. 55 lakhs on 31.3.2021 and Rs. 50 lakhs on 1.7.2021, and Mr. Selldom has received payment of Rs. 60 lakhs on 15.7.2021, with respect to the two purchases made by Mr. Goodly, whether TDS has to be deducted or TCS has to be collected? (assuming other conditions of section 194Q and section 206C(1H) are satisfied)

Ans. Since the buyer Mr. Goodly has not crossed the threshold limit of Rs. 50 lakhs in FY 2021-22 and the seller Mr. Selldom has received the amount exceeding the threshold limit of Rs. 50 lakhs, on 15.7.2021, in FY 2021-22, the seller Mr. Selldom has to collect the tax (TCS) of Rs. 1000 @ 0.1% on Rs. 10 lakhs, if all the conditions of section 206C(1H) are satisfied.

A Quick Referencer on Section 194Q

1. A Buyer purchasing any goods in value exceeding Rs. 50,00,000/- in a financial year & having his turnover from business or profession in excess of Rs. 10 crores, in immediately preceding financial year, from a resident seller, is liable to deduct TDS u/s 194Q @ 0.1% of such purchase consideration in excess of Rs 50 lakhs, on or after 1.7.2021.

2. TDS liability u/s 194Q will arise on all purchases booked or paid on or after 1.7 2021. Purchases booked or paid between 1.4.2021 till 30.6.2021 will be considered for determining the threshold purchase limit of Rs. 50,00,000/- in FY 2021-22.

3. In case of Non furnishing of PAN by Seller, TDS Rate will be 5% u/s 206AA.

4. In case of non filing of ITR by the seller, in immediately two preceeding financial years for which due date of return filing u/s 139(1) has expired, and the aggregate amount of TDS or TCS of such seller, in each of these two preceeding financial years is Rs 50,000 or more, then TDS rate u/s 206AB will be 5%.

5. The liability of the buyer, to deduct TDS u/s 194Q will prevail over the liability of the seller to collect TCS u/s 206C(1H) on all purchase/sale transactions entered after 1.7.2021.

6. If the Buyer fails to deduct the applicable TDS u/s 194Q then in addition to penal interest a disallowance of 30% of his purchases on which TDS was required to be deducted will get attracted.