INTRODUCTION
The purpose of the government enacting this provision appears to be to bring about a change in which a few significant amounts of transactions are tracked without a trail and GST funds are misused. The government aims to put all such purchasing transactions under some sort of audit trail so that any fraudulent or frivolous purchases may be recorded and brought under the SECTION 194Q TDS laws.
Though it should be noted that once this is adopted, both sections may apply to a single transaction, resulting in complexity in compliance for assessees covered by such transactions. As a result, it is suggested that either section 206 C (1H) or section 194 Q be implemented.
WHAT IS SECTION 194Q TDS ON PURCHASE OF GOODS?
Section 194Q of the Finance Act of 2021 became effective on July 1, 2021. ‘Any person, being a buyer, who is accountable for paying any amount to any resident (hereinafter referred to as the seller) for the purchase of any items of the value or aggregate of such value exceeding fifty lakh rupees in any preceding year, shall deduct an amount equivalent to 0.1 percent of such sum exceeding fifty lakh rupees as income-tax at the time of crediting such sum to the seller’s account or at the time of payment thereof by any mode, whichever is earlier.’
SECTION 194Q TDS RATE
If the seller has provided his PAN or Aadhaar, the tax will be deducted at the rate of 0.1 percent of the purchase value exceeding Rs. 50 lakhs by the buyer of goods; otherwise, the tax will be deducted at the rate of 5%.
SECTION 194Q TDS APPLICABILITY
In a brief, the following requirements must be met for this section to be applicable:
1. Purchases must be made by a resident.
2. In any preceding year, goods were acquired for a total value of more than Rs. 50 lakhs.
3. The purchaser’s previous financial year’s revenue must have exceeded INR 10 crores. (To determine the application of Section 194Q provisions for FY 2021-22, the purchaser’s turnover for FY 2020-21 must exceed INR 10 crores.)
4. No other sections of the Income Tax Act 1961 have been used to deduct TDS.
Is it necessary to deduct tax from goods exported overseas under Section 194Q TDS?
Only when a payment is made to a resident seller does, the seller has the right to deduct tax under this section. This section makes no distinction between the buyer’s residential status and the buyer’s ability to pay.
The supplier is a resident, while the buyer is a non-resident, as in a goods export transaction. As a result, the non-resident buyer may be liable to deduct tax under this clause, which may not be practical. In light of the authority conferred by the Explanation to Section 194Q, the Central Government may exclude such transactions.
TDS is deducted under section 194Q TDS at the time of crediting the amount to the seller’s account or at the time of payment by any means, whichever comes first. Even if the amount is deposited to the “Suspense Account,” the tax must be subtracted.
TCS requirements on the sale of goods by a buyer are covered under Section 206C(IH). As a result, there may be a disagreement or a lot of uncertainty as to whether this will result in double taxation or if one of the two sections will replace the other. Section 194Q explains that a person is not obligated to deduct tax under this provision if tax is deductible under another provision or tax is collectible under section 206C. In addition, the second proviso to section 206C(1H) states:
“Provided further that the requirements of this subsection do not apply if the buyer is required to deduct tax at source on the goods acquired from the seller under any other provision of this Act and has done so.”
It indicates that if a buyer is required to deduct TDS on a purchase transaction under Section 194Q, the seller is not permitted to collect TCS on the same transaction for which the buyer has already deducted TDS. In other words, the buyer is responsible for deducting the tax first and foremost. Now, if it is examined that the Equalization levy on such transactions, where a person can determine that if an e-commerce operator sells items to an Indian resident who meets all of the requirements in terms of turnover, the buyer (Indian resident) will be responsible to pay TDS on the transaction.
In this regard, Section 194Q TDS states that a buyer is only required to pay TDS when purchasing goods from a resident. As a result, if an e-commerce company is a non-resident, Section 194Q will not apply to them, and an equalization levy will be imposed on their transactions.
In a normal situation, the addition of this section would make it impossible to complete purchase orders and transactions. In order to complete a transaction, the buyer must first place a purchase order, which is subsequently executed by the seller, and the products are delivered to the buyer. However, the buyer’s payment is not made immediately; in many circumstances, the seller offers the buyer a credit facility. TDS under Section 194Q is only applicable at the time of payment of credit in books of account, whereas Section 206C(1H) is only applicable at the time of receipt of payment.
If TCS rules under section 206C(1H) and Section 194Q are applicable in a single transaction, an appropriate method would be for a buyer to deduct TDS at the time of making the purchase order.
SECTION 194Q TDS FOR EXAMPLE
If both the seller and the buyer had a turnover of INR 10 crores in the previous fiscal year, but the seller’s sales in October 2021 exceeded INR 50 lakhs and the buyer’s purchases above the threshold level set out in the section in January 2021. As the seller’s sales receipts exceed INR 50 lakhs, the seller must comply with Section 206C(1H) and file the TCS report for Quarter 3, FY 2021-22, with TCS, collected on sales profits exceeding INR 50 lakhs.
On the other side, starting in January, the buyer would be required to deduct TDS on purchases over INR 50 lakhs. As a result, a statement is required in which the buyer declares that TDS has been deducted under section 194Q TDS and the seller declares TCS collected under section 206C(1H), in order to ensure that tax has not been deducted twice on the same transaction.
CONSEQUENCES OF FAILING TO COMPLY WITH SECTION 194Q TDS
According to section 40(a)(ia) of the Income Tax Act 1961, if the buyer fails to deduct and submit TDS as required, the amount on which TDS is not deducted and submitted is subject to a disallowance limited to 30% of the amount of expenditure.