Chapter XVIIB of the Income Tax Act relates to deduction of tax at source. The provisions of this chapter provide for TDS on various payments at rates contained therein. It has been proposed in the Finance Bill, 2021 to provide for TDS by person responsible for paying any sum to any resident for purchase of goods. Clause 48 of the Finance Bill, 2021 has in this regard inserted a new Section 194Q with effect from 1st July, 2021 which pertains to TDS on purchase of goods, which is reproduced below for ready reference of our readers:
‘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.
(3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
(4) Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income tax authorities and the person liable to deduct tax.
(5) 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.’
Analysis of the Provision of TDS on purchase of goods:
It may be seen here that the rate of TDS is kept very low at 0.1%., thus intention of the Government is not solely collection of TDS amount but rather to plug tax evasion at the end of the supplier of goods.
Further to ensure that compliance burden is only on those who can comply with it, it has been 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.
The 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 (buyer) , if the purchase of goods by him from the seller is of the value or aggregate of such value exceeding Rs 50 lakhs 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.
Summary of the provisions of TDS on purchase of goods:
- “Buyer” i.e. who is required to deduct TDS, 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 (from a resident) is carried out. Accordingly the buyers whose total sales / turnover is exceeding Rs 10 crore in FY 2020-21 will only be required to deduct tax from 1st July, 2021.
- In case the resident Seller provids PAN card details, TDS rate will be 0.1% otherwise it will be 5 % as per Sec 206 AA.
- Tax Amount will be deducted by buyer on earlier of payment or credit of a sum exceeding Rs.50 Lakhs for purchase of goods in any previous year.Although not clarified however in our view this amount will include GST , though Tax will not be deducted on GST amount.
- The provisions of this section shall not apply to a transaction in following cases:-
- tax is deductible under any of the provisions of this Act; and
- tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies(TCS).
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
