TDS on Purchase of Goods - Section 194Q

The Finance Act, 2020 inserted Sub-Section (1H) in Section 206C to provide for collection of tax by a seller from the consideration received for sale of goods, if it exceeds ₹50 lakhs in any previous year. On similar lines, the Finance Bill, 2021 proposed a new Section 194Q for deduction of tax by a buyer on the purchase of goods. Here’s a practical FAQ on how the two provisions interact.

Who is liable to deduct tax under Section 194Q?

The tax is to be deducted by a buyer carrying on a business whose total sales, gross receipts, or turnover exceeds ₹10 crores during the financial year immediately preceding the year in which the goods are purchased. This provision applies from 1 July 2021. So if a purchaser’s turnover was more than ₹10 crores in FY 2020-21, the liability to deduct tax under this provision in FY 2021-22 arises.

When must tax be deducted under 194Q?

Tax must be deducted by the buyer at the time of credit in books or payment, whichever is earlier — even if the sums are credited to a suspense account.

What are the conditions for tax deduction under 194Q?

Tax is deducted at the time of credit or payment (whichever is earlier) if all of the following are satisfied:

• The assessee qualifies as a “buyer” per the turnover threshold above
• There is a purchase of goods from a resident person — import transactions are not subject to this TDS
• Goods purchased are for a value, or aggregate value, exceeding ₹50 lakhs during the financial year

Exception: transactions subject to TDS under this provision are not also subject to TCS under Section 206C(1H). The buyer has the first obligation to deduct tax; there’s no clarity on whether the obligation shifts to the seller if the buyer defaults.

At what rate is tax deducted?

Tax is deducted at 0.1% of the purchase value exceeding ₹50 lakhs. If the buyer does not furnish PAN or Aadhaar, tax is deducted at 5% under Section 206AA.

On what amount is tax deducted?

Tax is deducted only on the purchase value exceeding ₹50 lakhs. For example, if purchases during the year total ₹2 crore, the deduction liability applies only past the first ₹50 lakhs — deduction is made on ₹1.5 crore.

Where a transaction is covered by both 194Q and 206C(1H), who deducts/collects?

Section 206C(1H) — introduced in Budget 2020, effective 1 October 2020, requires a seller to collect TCS at 0.1% on goods sold in India where the value exceeds ₹50 lakhs. The provision also states the seller need not collect tax if the buyer is liable to deduct TDS under any other provision and has done so.

Section 194Q(5) provides that no tax is required to be deducted under this provision if tax is deductible under any other provision, or collectable under Section 206C (other than a transaction covered by 206C(1H)).

So Section 194Q doesn’t create an exception for 206C(1H), whereas 206C(1H) creates an exception where tax is deducted under 194Q — meaning the primary responsibility for deduction rests with the buyer.