Are You Aware About Applicability of TDS on Purchase of Goods

Income tax has introduced section 194Q, under which buyers needs to deduct TDS on purchase made during the year.

Applicability of Section 194Q

Buyers whose turnover/gross receipts/sales exceeds Rs. 10 crores during the last immediate financial year &
the aggregate value of purchase of goods exceeds Rs. 50 lakhs vendor wise, during the year &
supplier is resident as per Income Tax Act 1961

Rate of TDS on Purchase of goods

0.1% If seller submit his Permanent Account Number (PAN);
5% If seller doesn’t submit his Permanent Account Number (PAN)

When TDS need to be deducted?

At the time of payment (by any mode)
When transaction is recorded in books of accounts.

Whichever is earlier

On which amount TDS need to be deducted?

we have to deduct TDS on that amount which exceeds Rs. 50 Lakh.

Examples:

1. A buyer is having turnover of Rs.15 crores and he purchases goods worth Rs. 40 Lakh on 01-05-2023 and further he purchases good worth Rs. 30 lakhs from same vendor on 31-08-2022. In this case, in 1^st transaction the value of goods is less than the threshold limit of Rs. 50 lakhs. Buyer need not to deduct TDS. However, in 2^nd transaction purchase value exceeds Rs. 50 lakhs, then buyer need to deduct the TDS on the amount which exceeds Rs. 50 lakhs. In this case buyer need to deduct TDS on Rs 20 lakhs purchase at 0.1%.

2. Assume in above example buyer had turnover of Rs. 9 crores. Then this section is not applicable.

Other important points:

No TDS will be deducted if aggregate value of goods purchased is not exceeding Rs. 50 Lakh.
If transaction is covered under both section 194-O and 194-Q then TDS shall be deducted under section 194-O and not in under section 194-Q
If price is inclusive of GST and not mentioned separately, then buyer have to deduct TDS on gross value of invoice.
If GST amount is mentioned separately, then TDS need to be deducted on base amount (amount before GST).

TCS on sale of goods under Section 206C(1H)

Applicability:

Seller whose total turnover exceeds Rs. 10 crores in the immediately preceding financial year &
Sales to a particular party exceeds Rs. 50 Lakhs during the financial year.
If the buyer is liable to deduct TDS under section 194-Q then seller is not liable to collect TCS under section 206C(1H)

Rate of TDS

0.1% If buyer submit his Permanent Account Number (PAN)/ Aadhaar number
1 % If buyer doesn’t submit his Permanent Account Number (PAN)/Aadhaar number.

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