The Finance Act 2020 inserted Sub Section (1H) in Section 206C for furnishing the tax collection via a seller through the amount obtained as consideration for the goods sale when the same would surpass Rs. 50.00 Lacs in any former year. With identical references, the Finance Act 2021 inserted a TDS section 194Q for furnishing the deductions via a buyer from the purchase of goods. Section 194Q would be applicable which comes into force from the date 01.07.2021.
Applicability of TDS Under Section 194Q for The Consumer
- Relevant of TDS Section 194Q: Any individual (Buyer) is liable to pay the sum to any resident (Seller) for buying the goods value or aggregate of these values more than Rs 50 lacs in any former year would be during the period of payment or credit (the earlier one) deduct the amount identical to 0.1 % of these sum of more than Rs. 50 lacs as the income tax.
- What comprises Goods: The Sales of Goods Act, of 1930 is a particular law concerned with goods sale. Hence through this the definition of the good could be referred from the above-mentioned law for the purpose of section 194Q.
- According to section 2(7) of the act, the goods could be described as. Every sort of movable property excluding the actionable claims and money along with the stock and shares, growing crops, grass, including the things attached to or forming the land part that is considered to be provided prior to the sale or under the sale contract.
- The Consumer could be a citizen or non-citizen: CBDT described that Section 194Q would not be subject to be applied to the nonresident who does not secure a permanent establishment in India.
- A Consumer is Determined: An individual with total sales, gross receipts, or turnover from the business operated through him is more than Rs 10 Crore in the Fiscal Year just preceding the financial year in which the buying of the goods would be performed.
- Under 194Q the tax would get deducted from the value of the purchase of Movable property; Any Commodity; Electricity; Agriculture Produce; Fuel; Motor Vehicle; Jewellery and Bullion; Art or drawings; Sculptures; Scraps; Forest produce; and others.
Detailed Examination of the Items Under TDS Section 194Q
- If the securities transactions performed via stock exchanges would be applicable for TDS: No one-to-one contract between sellers and buyers. For eliminating the issues, the CBDT would specify that the section 194Q does not get applied to the transactions in securities (and commodities) which would be traded via acknowledged stock exchanges or cleared and settled through the acknowledged clearing corporations, along with the acknowledged stock exchanges or acknowledged clearing corporation situated in International Financial Service Centre (IFSC).
- Electricity transactions will be subject to TDS: For the case of the State of Andhra Pradesh Vs National Thermal Power Corporation (NTPC) (2002) 5 SCC 203, ruled that the electricity would be the movable property but it is not real. CBDT specified, the transaction in electricity, renewal energy certificates, and energy saving certificates traded via power exchanges registered under Regulation 21 of CERC does not come under the scope of TDS under the provision of Section 194Q. hence the same comes under deduction on the transaction when there would be a direct buying via a company that has been involved in the generation of electricity.
- Is TDS applicable for the transaction of purchase of the software: The Finance Act 2012 incurred the clarificatory revision in the definition of Royalty provided in section 9 specifying the usage and right to use the software would be the royalty. TDS would get applied to the royalty payment under TDS section 194J or section 195 under the case. The provision of section 194Q does not applicable on which the tax is deductible under any other provision.
- In Tata Consultancy Services Vs the State of A.P. (2004) 141 Taxman 132 (SC) ruled that canned software would be the goods. When the software bought is considered as buying the services, TDS would get deducted under section 194J or 195. Apart from that when the buying of the software would be recognized as buying of the goods then the deduction of the TDS would be called under section 194Q.
- TDS is to be applied to the transactions of the jewellery purchase: no condition is there for the purchase that must be linked with the business merely. Jewellery count as a movable property and does come within the term goods. No precise exclusion is there on buying the jewellery. Tax gets deductible upon buying the jewellery when the additional conditions get satisfied.
- If the GST component in sale value levied to TDS: CBDT explained, under 194Q, a Tax Deducted at Source would get deducted upon the credited amount along with the GST when the below-mentioned conditions would get fulfilled:
- TDS deducted during the amount gets credited to the seller’s account.
- GST specified in the payable amount to the seller shows separately according to the terms of the agreement or contract between buyer and seller.
When the GST amount would be non-separable TDS is required to get deducted upon the complete amount.
- If the loan provided to the seller would be levied to TDS: The loan furnished via the buyer would not be the payment for the purchase of the goods, the same would be left outside the provision. When the same loan amount would get settled against the value of purchase within any subsequent date then the liability to deduct TDS will awake.
- What would be the solution for the purchase return: CBDT mentioned, as the tax needed to get deducted during the payment or credit whichever is before hence return occurs prior to the buying, under section 194Q the tax should already get deducted on the same buying. When the seller would have refunded the money against the purchase of the return TDS might adjust against the subsequent buying from the identical seller.
- The applicability of Section 194Q and 206C (1H): The second proviso to section 206 C (1H) furnishes when the purchaser would be obligated to deduct tax beneath any additional provision on the buying of the goods by him from the seller and no tax would get deducted on the same transaction. Section 194 Q (5) furnishes, no tax would be needed to get deducted via the individual beneath the same provisions when the tax-deductible beneath any additional provision of the tax would be collectable U/S 206C (Except U/s 206C (1H)). The purchaser would have a main and only obligation for ta deduction, no tax will be collected on the same transactions under section 206 C (1H). But the tax does not get deducted via the seller for any cause section 206 (1H) will be applicable.
Difference Between 194Q & 206C(1H)
| Origin of Distinction | Section 194Q TDS on Buying the Goods | Section 206 C (1H) of the TCS on the Sale of Goods |
|---|---|---|
| Who is responsible for Deduction/ Collection | The Buyer | The Seller |
| Turnover Limit of Deductor / Collector | The total sales, gross receipt or turnover of the buyer must surpass Rs. 10 Crores in the fiscal year preceding the fiscal year when the goods have been purchased | The total sales, gross receipt or turnover of a must surpass Rs. 10 Crores for the fiscal year preceding the fiscal year where the goods have been sold |
| Limit of Threshold in Sales/ Purchase | Value of purchase more than Rs. 50.00 Lacs | Value of sales more than Rs. 50.00 Lacs |
| Time of collection/ deduction | Time of credit/payment whichever is early | T the receipt time |
| Preference to be provided | The purchaser would initially be obligated to deduct tax if the transaction can be referred to both provision | The seller will be obligated for collecting the tax for the case when the Tax has not been deducted |
Example: Rs. Crore
| Facts | Case A | Case B | Case C |
|---|---|---|---|
| Seller Turnover | 18 | 5 | 18 |
| Buyer Turnover | 5 | 18 | 18 |
| Goods Sold Amount | 4 | 4 | 4 |
| Amount Paid | 2 | 2 | 2 |
| Who is Responsible for Collection/ Deduction | Seller | Buyer | Buyer |
| Tax Rate | 0.10% | 0.10% | 0.10% |
| Deduction of Tax From the Amount | 1.50 | 3.50 | 3.50 |
| Tax for Collected / Deducted (In Rs.) | 15,000 | 35,000 | 35,000 |
Additional Countings
- If the tax would get deducted on the exemption of the seller/buyer income from tax: CBDT mentioned that Section 194Q will not be subjected to be applied when the income of the seller would be exempt. Identical to 206 C (1H) will not be applied to buyers whose income is exempt from tax ( Under section 10 or otherwise).
- If the Turnover /Receipt of non–business activity would be calculated for threshold limit: NO
Important Notes About 194O,194Q and 206C(1H) Sections
- The transaction is both within the purview of 194O and 194Q, Tax will get deducted under 194O.
- The transaction is both within the purview of 194O and 206 C(1H), Tax will get deducted under 194O of the Act.
- The transaction is both within the purview of 194Q and 206C, tax will get deducted under 194Q of the Income Tax Act, 1961.
In the above words, we explained the complete guide to the TDS section for 194Q on purchased goods. If you read the article carefully then most of the confusion is cleared.
