Deduction of Tax at Source on Payment for Purchase of Goods

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Table of Contents

1. Deduction of tax at source on payment for purchase of goods

1.1 Who is responsible for tax deduction at source under section 194Q
1.2 When tax has to be deducted at source
1.3 Issue a certificate for tax deducted at source to unitholders
1.4 Statement/returns to the Government
1.5 Consequences of failure to deduct or pay tax, furnish returns, etc.

Check out Taxmann's Deduction of Tax at Source with Advance Tax and Refunds which provides legal analysis of the provisions relating to TDS, TCS, Advance Tax and Refunds under the Income-tax Act. It also includes guidance on all practical problems supported by illustrations, case laws, etc. This book is amended by the Finance Act 2022.

1. Deduction of tax at source on payment for purchase of goods

1.1 Who is responsible for tax deduction at source under section 194Q

Under section 194Q, tax is deductible by buyer of goods. “Buyer” for this purpose, means a person whose total sales, gross receipts or turnover from the business carried on by him exceed Rs. 10 crore during the financial year immediately preceding the financial year in which the purchase of goods is carried out. However, “buyer” does not include a person notified by the Central Government (subject to such conditions as may be specified therein)†.

Any person (being a buyer) who is responsible for paying any sum to any resident seller for purchase of any goods of the value (or aggregate of such value) exceeding Rs. 50 lakh in any previous year, is required to deduct tax at source under section 194Q with effect from July 1, 2021.

1.2 When tax has to be deducted at source?

Tax should be deducted by the buyer, 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. Where, however, the above sum is credited to any account (whether called “suspense account” or by any other name) in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

1.3 Issue a certificate for tax deducted at source to unitholders

Every person deducting tax from income in respect of units is required to issue certificate in Form No. 16A.

1.3-1 Certificates are issued by downloading from TRACES Portal

1.3-2 Time limit within which the certificate should be given

1.3-3 Issue of duplicate certificate

1.4 Statement/returns to the Government

Quarterly return of income in respect of tax deducted under section 194Q is to be filed within the prescribed time-limit in Form No. 26Q

1.5 Consequences of failure to deduct or pay tax, furnish returns, etc.

The following are consequences of different defaults :

1.5-1 Failure to deduct and/or pay tax

1.5-2 Failure to comply with the provisions of section 203A regarding tax deduction account number

1.5-3 Failure to issue certificates or submit return/statement

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† In exercise of this power, the Central Government has specified that Air India Assets Holding Ltd. shall not be considered as “buyer” for this purpose in case of transfer of goods by Air India Ltd. to it under a plan approved by the Central Government – Notification No. S.O. 3680(E), dated September 10, 2021.