TDS on purchase of goods under Section 194Q 

1. TDS on purchase of goods under Section 194Q (01/07/2021)

Any person, being a buyer, who is responsible for paying any payment to any resident for the acquisition of any goods of a value that exceeds Rs. 50 Lacs in any previous year is subject to Section 194Q of the Income Tax Act, 1961. 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 Rs. 50 Lacs as income-tax (TDS). 

Buyer means a person whose total sales, gross receipts or turnover from the business carried on by him exceed Rs.10 crores during the financial year immediately preceding the financial year in which the purchase of goods is carried out. 

Further it is clarified that where provisions of both TCS on sale of Goods u/s 206C (1H) and TDS on purchase of Goods u/s 194Q are applicable, provisions of TDS u/s 194Q shall prevail.

2. TCS on Sale of Goods under Section 206C(1H) (01/10/2020) 

As per Section 206 C (1H) of the Income Tax Act, 1961, every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax (TCS) 

Seller 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 sale of goods is carried out. 

3. Comparison between Section 194Q and 206C(1H) 

Points to Ponder & Compliance in Section 194Q / 206C (1H)
• In case the buyer fails to comply with the tax deduction provisions covered under section 194Q, then, as per the provision of section 40a(ia), there would be disallowance of expenditure up to 30% of the value of the transaction.
• No adjustment on account of sales returns, discounts or indirect taxes is required to be made as per CBDT circulars & press release.
• Provisions of section 194Q apply to the purchase of both types of goods i.e. capital as well as revenue as not specifically mentioned.
• Turnover details for vendors & customers have to be maintained for TDS / TCS.
• Declaration has to be obtained from vendors / customers every year in respect of income tax return filing & TDS/TCS exceeding Rs. 50,000/- but as per latest Circular No. 11 of 2021 dated 21/06/2021 by CBDT these compliance burden has been reduced by new functionality called Compliance Check for Sections 206AB & 206CCAavailable at Income Tax Portal.
• Accounting System / ERP has to be updated for every customer / vendor masters.

If both the seller and the buyer have a turnover of more than 10 crores, and the transaction value exceeds 50 lakhs, the person with the higher turnover must tax it.