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February 6, 2021

Know all About Tax Deduction at Source (TDS) on purchase of goods Section 194Q: Budget 2021

by CA Shivam Jaiswal in Budget

Know all About Tax Deduction at Source (TDS) on purchase of goods Section 194Q: Budget 2021

Presently, tax is collectible (TCS) by seller from buyer on goods exceeding INR 50 Lakhs by a specified seller. It is now proposed to further provide for TDS on goods purchased from any resident, being seller, in following case:

Purchase of goods – value or aggregate of value of goods purchased is more than Rs 50 Lakhs during the year. Person Responsible to  deduct tax will be Person being buyer whose total sales, gross receipts or turnover from the business carried on by him is more than Rs 10 Crores during the FY immediately preceding the FY in which goods were purchased

Rate of TDS will be 0.1% (5% if PAN not provided)

Exceptions to rules are if Tax is deductible under any other provision of the Act or Transaction on which tax is collectible under the provisions of the Act other than sale of goods. If on a transaction, TCS is required u/s 206C (1H) as well as TDS under this amended section, then only TDS under this section will apply.

This provision will take effect from 1st July 2021.

Extract from Budget Memorandum

Chapter XVIIB of the Act relates to deduction of tax at source. The provisions of this chapter provide for TDS on various payments at rates contained therein. It is proposed to provide for TDS by person responsible for paying any sum to any resident for purchase of goods. The rate of TDS is kept very low at 0.1%.

To ensure that compliance burden is only on those who can comply with it, it is proposed that the tax is only required to be deducted by those person (i.e “buyer”) 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.

Central Government is proposed to be empowered by notification in the Official Gazette to exempt a person from obligation under this section on fulfilment of conditions as may be specified in that notification.

Tax is required to be deducted by such person, if the purchase of goods by him from the seller is of the value or aggregate of such value exceeding fifty lakh rupees in the previous year. It is also proposed to provide that the provisions of this section shall not apply to,-

  • (i) a transaction on which tax is deductible under any provision of the Act; and
  • (ii) a transaction, on which tax is collectible under the provisions of section
    206C other than transaction to which sub-section (1H) of section 206C applies.

This means, if on a transaction a TDS or tax collection at source (TCS) is required to be carried out under any other provision, then it would not be subjected to TDS under this section. There is one exception to this general rule. If on a transaction TCS is required under sub-section (1H) of section 206C as well as TDS under this section, then on that transaction only TDS under this section shall be carried out.

Board with the approval of the Central Government has been empowered to issue guidelines for removing difficulty in giving effect to the provisions of this section.

Every guideline issued by the Board is required to be laid before each House of Parliament, and shall be binding on the income-tax authorities and the person liable to deduct tax

It is also proposed to consequentially amend sub-section (1) of section 206AA of the Act and insert second proviso to further provide that where the tax is required to be deducted under section 194Q and Permanent Account Number (PAN) is not provided, the TDS shall be at the rate of five per cent.

These amendments will take effect from 1st July, 2021.

Read more: Know everything about TDS with FAQ

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