TDS under Section 194Q of the Income-tax Act - Guidelines and FAQs

TDS03/07/2021 Source: TDS

 

Section 194Q:- Finance Act, 2021 inserted a new section 194Q in the Income-tax Act 1961  which takes effect from 1st day of July, 2021. Section 194Q applies to 

(A)A buyer who is responsible for paying any sum to any resident seller for purchase of any goods.

(B)Where the value or aggregate of value of goods exceeding fifty lakh rupees in any previous year.

The buyer, at the time of credit of such sum to the account of the seller or at the time of payment, whichever is earlier, is required to deduct an amount equal to 0.1 % of such sum exceeding fifty lakh rupees as income tax.

Buyer:- It is defined to be person whose total sales or 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 good is carried out.

Section 194O:- This section apllicable for TDS on payments to e-commerce operator and applicable from 1st October 2020. As per this section, the e-commerce operator require to deduct TDS at 1% at the time of credit of the sale of goods and/or services. The provisions of this section are applicable only when the gross sale of the e-commerce operator in the previous year exceeds Rs.5 lakh.  

Calculation of threshold for the financial year 2021-22:- In following menner the threshold of fifty lakh rupees specified under this section shall be computed:-

(1) the provision of this sub-section shall not apply on any sum credited or paid before I st July 2021. If either of the two events had happened before 1 st July 2021 , that transaction would not be subjected to the provisions of section 194Q of the Act.

(ii) if a person being buyer has already credited or paid fifty lakh rupees or more up to 30th June 2021 to a seller, the TDS under section 194Q shall apply on all credit or payment during the previous year, on or after I st July 2021, to such seller.

Adjustment for GST

(A) With respect to TDS under section 194Q of the Act, it is clarified that when tax is deducted at the time of credit of amount in the account of seller and in terms of the agreement or contract between the buyer and the seller, the component of GST comprised in the amount payable to the seller is indicated separately, tax shall be deducted under section 194Q of the Act on the amount credited without including such GST.

However, if the tax is deducted on payment basis because the payment is earlier than the credit, the tax would be deducted on the whole amount as it is not possible to identity that payment with GST component of the amount to be invoiced in future.

(B) Further, with respect to purchase return it is clarified that the tax is required to be deducted at the time of payment or credit, whichever is earlier. Thus, before purchase return happens, the tax must have already been deducted under section 194Q of the Act on that purchase. If that is the case and against this purchase return the money is refunded by the seller, then this tax deducted may be adjusted against the next purchase against the same seller.

However, No adjustment is required if the purchase return is replaced by the goods by the seller as in that case the purchase on which tax was deducted under section 194Q of the Act has been completed with goods replaced.

FAQ 1. Whether non-resident can be buyer under section 194Q of the Act?

it is clarified that the provisions of section 194Q of the Act shall not apply to a non-resident whose purchase of goods from seller resident in India is not effectively connected with the permanent establishment of such nonresident in India. For this purpose, "permanent establishment" shall mean to include a fixed place of business through which the business of the enterprise is wholly or partly carries on

FAQ 2. Whether tax is to be deducted when the seller is a person whose income is exempt

It is clarified that the provisions of section 194Q of the Act shall not apply on purchase of goods from a person, being a seller, who as a person is exempt from income tax under the Act. The provisions of section 194Q of the Act shall not apply on purchase of goods from a person, being a seller, who as a person is exempt from income tax under the Act (like person exempt under section 10) or under any other Act passed by the Parliament (Like RBI Act, ADB Act etc.).

FAQ 3. Whether tax is to be deducted on advance payment

It is clarified that since the provisions apply on payment or credit whichever is earlier, the provisions of section 194Q of the Act shall apply to advance payment made by the buyer to the seller.

FAQ 4. Whether provisions of section 194Q of the Act shall apply to buyer in the year of incorporation?

It is clarified that under section 194Q of the Act a buyer is required to have total sales or gross receipts or turnover from the business carried on by him exceeding ten crore rupees during the financial year immediately preceding the financial year in which the purchase of good is carried out. Since this condition would not be satisfied in the year of incorporation, the provisions of section 194Q of the Act shall not apply in the year of incorporation.

FAQ 5. Whether provisions of section 194Q of the Act shall apply to buyer if the turnover from business is 10 crore or less?

It is clarified that for the purposes of section I94Q of the Act, a buyer is required to have total sales or gross receipts or turnover from the business carried on by him exceeding ten crore rupees during the financial year immediately preceding the financial year in which the purchase of good is carried out. Hence, the sales or gross receipts or turnover from business carried on by him must exceed Rs 10 crore. His turnover or receipts from non-business activity is not to be counted for this purpose.

FAQ 6. Cross application of section 194O, section 206C(1H) and section 194Q of the Act

(i)If tax has been deducted by the e-commerce operator on a transaction under section 194O of the Act that transaction shall not be subjected to tax deduction under section 194Q of the Act.

(ii)This exemption would also cover a situation where instead of the buyer the e-commerce operator has deducted tax at source on that transaction of sale of goods by seller to buyer through e-commerce operator.

(iii)If a transaction is both within the purview of section 194O of the Act as well as section 194Q of the Act, tax is required to be deducted under section 194O of the Act and not under section 194Q of the Act.

(iv)If a transaction is both within the purview of section 194O of the Act as well as sub-section (1H) of section 206C of the Act, tax is required to be deducted under section 194O of the Act

(v) If a transaction is both within the purview of section 194Q of the Act as well as section 206C(1H) of the Act, the tax is required to be deducted under section 194-Q of the Act.