Tax Deduction at Source (TDS) on purchase of goods

Background:

As per Finance Bill 2021, it is proposed by government to deduct TDS @ 0.10% on purchase of Goods with effect from 01.07.2021 as per section 194Q of Income Tax Act , 1961. Tax Deduction at Source (TDS) on purchase of goods is not applicable in  case TDS is applicable under any other provision of Income Tax or Seller is collecting TCS U/S 206C(1H) . It is to be noted that after implementing TCS on consideration for sale of any goods  as per section 206C(1H) w.e.f. 01.10.2020 , this is additional compliance burden to tax payer to deduct TDS under section 194Q on purchase of Goods. . Detailed provision of this section 194Q of Income Tax is as under:

Tax Deduction at Source (TDS) on purchase of goods:

‘Section 194Q.

(1) Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent. of such sum exceeding fifty lakh rupees as income-tax.

Explanation.––For the purposes of this sub-section, “buyer” means a person 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, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.

(2) Where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and
the provisions of this section shall apply accordingly.

Summary – Tax Deduction at Source (TDS) on purchase of goods:

It is proposed to provide for TDS by person responsible for paying any sum to any resident for purchase of goods. at the rate of 0.1%. To ensure that compliance burden is only on those who can comply with it, it is proposed by Government  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.

No need to deduct TDS in below cases:

The provisions of this section shall not apply to a transaction on which––
(a) tax is deductible under any of the provisions of this Act; and
(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.’.

Hope this post helped you understand Tax Deduction at Source (TDS) on purchase of goods under section 194Q.

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