The Finance Act 2021 inserted a new section, Section 194Q, providing for Tax Deducted at Source (“TDS”) on purchase of goods with effect from July 1, 2021. This section is similar in structure to Section 206C(1H) which was introduced through Finance Act 2020, to collect tax at source on consideration received from the buyer

1. Introduction of
Section 194Q
194Q

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Introduction Section 194Q
The Finance Act 2021 inserted a new section, Section 194Q, providing for Tax Deducted at Source (“TDS”) on purchase of
goods with effect from July 1, 2021. This section is similar in structure to Section 206C(1H) which was introduced through
Finance Act 2020, to collect tax at source on consideration received from the buyer.
Provision of section 194Q :
As per provisions of section 194Q of the Income Tax Act, TDS is deductible if-
A] The buyer is responsible for making payment of a sum
to the resident seller; and
B] Such payment is to be done for the purchase of
goods of the value/ aggregate of the value exceeding
Rs. 50 Lacs.
Note: In case the Permanent Account Number (PAN) of the seller is not available. Then, the buyer would be liable to deduct tax @ 5%.
The buyer is liable to deduct TDS at the rate of 0.1% of the purchase value above Rs. 50 Lacs.

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Explanation of the term 'Buyer'-
As per explanation to section 194Q, the term 'Buyer' means as under-.
A person having total sales/ gross receipts/ turnover
exceeding Rs. 10 Crores in the immediately preceding financial
year in which the specified purchase of goods took place,
Buyer will not include any person notified by the
Central Government.
Example
Total turnover of ABC Ltd for the Financial Year 2020-21 is Rs. 15 Crores and ABC Ltd has purchased goods from XYZ Ltd
during the year 2021-22 is of Rs. 54 Lakhs. Following is the situation of TDS in given case
Buyer Turnover i.e. Turnover of ABC Ltd
Value of Goods Purchased
Taxable Value
TDS on Total Value(If PAN of seller is available)
TDS on Total Value(If PAN of seller is not available)
Exceeding 10 Crores in Previous FY
Exceeding Rs. 50 Lacs i.e. Rs. 54,00,000
Rs. 4,00,000 (54,00,000-50,00,000)
Rs. 400 (4,00,000*0.1%)
Rs. 20,000 (4,00,000*5%)

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Time of tax deduction on the purchase of goods under Section 194Q:
I) TDS on purchase of goods is to be deducted by the buyer within earlier of the following dates-
Ÿ At the time of credit of the sum into the account of the seller i.e. when invoice is raised; or
Ÿ At the time of payment of the sum thereof i.e. Payment against Invoice either as an Advance or regular Payment .
ii) Section 194Q is applicable from the date of 1st July, 2021 therefore any Invoice raised on or after 1st July 2021 and any
payment done on or after 1st July, 2021.
iii) Threshold limit of fifty lakh rupees for applicability of TDS under section 194Q shall be computed from 1 st April, 2021.
Hence, if a person being buyer has already credited or paid fifty lakh rupees or more up to 30th June 2021 to a seller, the
TDS under section 194Q shall apply on all credits or payments during the previous year, on or after 1st July 2021 , to such
seller.
Non-Applicability:
TDS provisions covered under section 194Q are not applicable under the following cases-
Ÿ Transactions on which TDS is already deductible under other provisions of the Income Tax Act; or
Ÿ Transactions on which TCS is collectable as per provisions of section 206C [other than a transaction on which TCS is
collectable under section 206C(1H)]

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Section 194Q VS Section 206C(1H)
Purchaser
(Assuming Turnover more than Rs.10 crores in preceding year)
Purchases more than Rs.50 lacs from single seller Purchases less than Rs.50 lacs from single seller
Purchaser will deduct TDS under section 194Q No TDS, No TCS
Seller
(Assuming Turnover more than Rs. 10 Crores in preceding year)
Collection more than Rs. 50 Lacs from single seller Collection more than Rs. 50 Lacs from single seller
No TDS, No TCS
If buyer is having turnover more than
Rs. 10 crores in preceding year
If buyer is having turnover less than
Rs. 10 crores in preceding year
Buyer will deduct TDS under
section 194Q So No TCS by seller
Seller to collect TCS under section
206C(1H) So No TCS by buyer

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Turnover of Seller
(in crore) for
F.Y. 2020-21
11
11
9
9
11
11
Example 1
Turnover of
Buyer (in crore)
for F.Y. 2020-21
Amt. received or paid or credited for sale or
purchase of Goods in previous year (in Lacs)
Before
1st July 2021
From
1st July 2021
Total
Turnover during
F.Y. 2021-22
Taxable
amount in
Lacs
Whether
PAN is
available
TDS or
TCS
Liable
Person
Applicable
Section
Explanation
for
Applicability
9
9
11
11
11
11
40
60
25
60
75
20
15
0
35
40
80
45
55
60
60
100
155
65
5
10
10
40
80
15
Buyer PAN
Available
Buyer PAN
Not Available
Sellers PAN
Available
Sellers PAN
Not Available
Sellers PAN
Available
Sellers PAN
Not Available
TCS@0.1%
TCS@1%
TDS@0.1%
TDS@5%
TDS@0.1%
TDS@5%
Seller
Seller
Buyer
Buyer
Buyer
Buyer
206C(1H)
206C(1H)
194Q
194Q
194Q
194Q
Buyer Turnover
less than 10 Crore
Buyer Turnover
less than
10 Crore
Buyer Turnover
exceeding
Rs. 10 Crore
Buyer Turnover
less than 10 Crore
Exclusion Provided
under Sec 206C(1H)
Exclusion Provided
under Sec 206C(1H)
Note: Accordingly with respect to TDS under section 194Q of the Act, it is clarified that when tax is deducted at the time of credit of amount in the account
of seller and in terms of the agreement or contract between the buyer and the seller, the component of GST comprised in the amount payable to the
seller is indicated separately, tax shall be deducted under section 194Q of the Act on the amount credited without including such GST. However, if the tax
is deducted on payment basis because the payment is earlier than the credit, the tax would be deducted on the whole amount as it is not possible to
identify that payment with the GST component of the amount to be invoiced in future.

7. Comparison of the provision of Section 194Q and 206C(1H) of Income Tax Act, 1961
Purpose
Applicable to
With Effect From
When Deducted or Collected
Advances
Rate of TDS/TCS
Rate if PAN not available
Triggering point
When to deposit deducted TDS &
collected TCS to Govt.
Quarterly statement to be filed
Certificate to be issued to seller/buyer
Preference of TDS or TCS
Particulars 194Q (TDS) 206C(1H) (TCS)
Tax to be DEDUCTED
Buyer/Purchaser
01/07/2021
Payment or credit, whichever is earlier
TDS shall be deducted on advance payments made
0.1%
5%
Tax to be COLLECTED
Seller
01/10/2020
At the time of receipt
TCS shall be collected on advance receipts
0.1%
1%
Turnover/Gross Receipts/Sales from the business of BUYER
should exceed Rs.10cr during previous year (Excluding GST)
Purchase of goods of aggregate value exceeding Rs.50Lakhs in P.Y.
(The value of goods includes GST)
Turnover/Gross Receipts/Sales from the business of SELLER should
exceed Rs.10cr during previous year (Excluding GST) Sale
consideration received exceeds Rs.50Lakhs in P.Y. (The value of
goods includes GST)
TDS to be deposited to Government by 7th day of subsequent month
and by 30th April in case of March month
TCS to be deposited by 7th day of subsequent month and by 30th April in
case of March month
26Q
FORM 16A
27EQ
FORM 27D
The buyer shall deduct TDS u/s 194Q if the purchase value exceeds
Rs. 50 Lakhs. In this case, the seller will not collect TCS u/s 206C(1H)
The seller shall collect TCS u/s 206C(1H) only if the buyer is not liable to
deduct TDS or the buyer has not deducted TDS u/s 194Q.
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Disclaimer:This material and the information contained herein prepared by S K P N & Associates is intended to provide general information on TDS on purchase of
goods and is not exhaustive. We are not providing any professional advice or service by means of the above information. The information is not intended to be
relied upon as the sole basis for any decision which may affect you or your business. Before making any decision or taking any action that might affect your
personalfinancesorbusiness,youshouldconsultwithusoranyotherqualifiedprofessionaladviser.
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