Be prepared for another tedious compliance

 

 

 

As businesses are getting ready to re-start post lockdown, another tedious compliance is on the way to hit them. Already finding it difficult to comply with TCS on Sales, Income Tax Department is ready with another missile from their armor i.e. TDS on purchases under new section 194Q. What is section 194Q? “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 Rs 50 lakh 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 lakhs rupees as income-tax”.

 

1. Date of applicability / commencement of TDS u/s 194Q:- This provision shall be applicable from 01-07-2021.

2. Criteria for liability to deduct tax under Section 194Q? A buyer carrying on business is required to deduct TDS under Sec 194Q, if:- a) Its total sales, gross receipts or turnover exceeds Rs 10 crore during the last financial year i.e. in FY 2020-21.b) The total aggregate purchases from a resident person exceeds Rs 50 lakh in a fiscal.

3. Rate of TDS:- TDS shall be deducted by the buyer @ 0.1 per cent of the purchase value exceeding Rs 50 lakh if the seller has furnished its PAN, else, the TDS shall be deducted @ 5 per cent.

4. Time of deduction of TDS:- TDS is required to be deducted at the time of credit of purchase consideration or at the time of payment by any mode, whichever is earlier. Exclusions:- 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 section 206C (1H) applies.

5. Applicability in some typical cases:- Import /Export transactions : Not Applicable, Transactions in Shares / Securities through Recognised Stock Exchanges: Not applicable, Purchase of goods for personal use: applicable.

6. Amount to be considered for deduction of TDS:- TDS is required to be deducted on the total value of invoice i.e. inclusive of GST and any other amount / expenses charged in the Invoice.

7. Calculation of the Threshold limit of Rs 50 lakh:- The threshold limit of Rs 50 lakh has been prescribed for the entire financial year. So calculation of sale consideration would be considered from 01/04/2020 itself. The threshold should be calculated including all the purchases made from 01/04/2021 onwards. However, TDS is to be deducted for purchases made on or after 01/07/2021 only. 8. Whether Advance given would attract provisions of TDS ? If any sum is paid as advance, which is ultimately to be adjusted against the cost of purchases, then in such cases TDS is to be deducted at the time of payment of advance. However, advance paid before 01/07/2021 would not fall within the ambit of this section. Implication of Non-compliance of section 194Q. If the buyer fails to deduct and deposit TDS as applicable then there will be dis-allowance of 30 per cent of the amount of expenditure on which TDS is not deducted and deposited. Applicability of section 194Q with Examples:- Case 1:- Seller’s turnover: Rs 9 crore, Buyer’s turnover : Rs 15 crore. Receipt or payment for sale or purchase of goods in previous year: Rs 55 lakh. Applicability:- Buyer’s turnover is more than Rs 10 crore, taxable amount: Rs 5 lakh (Rs 55 lakh - Rs 50 lakh).

 

TDS u/s194Q : 0.1 per cent on Rs 5 lakh. TCS u/s 206C(1H): not applicable as seller’s turnover is less than Rs 10 crore. Case 2: Seller’s turnover : Rs 15 crore, Buyer’s turnover : Rs 9 crores. Receipt or payment for sale or purchase of goods in previous year : Rs 55 lakh. Applicability: Buyer’s turnover is less than Rs 10 crore, Seller’s turnover is more than Rs 10 crore. Taxable amount: Rs 5 lakh (Rs. 55 lakh - Rs 50 lakh). TDS u/s194Q : Not applicable TCS u/s 206C(1H): 0.1 per cent on Rs 5 lakh. Case 3:- Seller’s turnover : Rs 15 crores, Buyer’s Turnover: Rs 15 crores. Receipt or payment for sale or purchase of goods in previous year : Rs. 55 lakh. Applicability:- Buyer’s turnover is more than Rs 10 crores, seller’s turnover is more than Rs 10 crore. Taxable amount: Rs 5 lakh (Rs 55 lakh - Rs 50 lakh). TDS u/s194Q : 0.1 per cent on Rs 5 lakh. TCS u/s 206C(1H): Not applicable (see exception). It will be better if Government can explain the objective of bringing this provision. I do not see any material benefit to Government. Rather it will make things difficult for the businessmen as well as administration. As there are still few days left for applicability of provision, I sincerely hope both these provisions i.e. TCS on Sales (already made applicable) and TDS on purchases would be removed. The author is Practicing Chartered Accountant.