Section 194Q which was introduced by Finance Act, 2021 and is TDS version of section 206C(1H) which was introduced by Finance Act, 2020.
The new TDS provision will be applicable from 01.07.2021
Both the above section deals with TDS and TCS respectively on purchase and sale of goods respectively.
The conditions of both the sections are similar that the person liable to deduct or collect tax needs to have turnover above Rs. 10 crore in previous financial year and the transaction with one person needs to be above Rs. 50 lakh in the current year.
The rate of TDS and TCS for such transaction is also similar i.e. 0.1%. TCS is collected at the time of receipt whereas TDS needs to be deducted at the time of credit or payment whichever is earlier.
Under TCS section 206C(1H) people have been collecting TCS on the total invoice value i.e. the purchase price including the GST amount.
Hence, now with introduction of TDS provision on the similar transaction people are confused as to whether they need to deduct TDS on purchase value including GST or excluding GST.
If we have a look at the section it says as under:
“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 fifty lakh rupees 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 lakh rupees as income-tax.“
According to the above provision TDS needs to be deducted on such sum which is mentioned above i.e. any sum paid to a resident for purchase of goods.
People are considering this “any sum” to mean that it will include GST amount as well, as that also needs to be paid for purchase of goods.
However, in other sections of TDS also same language has been used where TDS was to be deducted on any payment made to take services and people were not deducting TDS on GST element while making that payment because of a circular issued by CBDT.
Circular 23/2017 which modified earlier Circular 01/2014 of Income tax for GST purpose wherein it was mentioned that:
“wherever in terms of the agreement or contract between the payer and the payee, the Service Tax component comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XVIl-B of the Income tax Aet, 1961 (the Act) on the amount paid or payable without including such Service Tax component.
In the light of the fact that even under the new GST regime, the rationale of excluding the tax component from the purview of TDS remains valid, the Board hereby clarifies that wherever in terms of the agreement or contract between the payer and the payee, the component of ‘GST on services’ comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XV Il-B of the Act on the amount paid or payable without including such ‘GST on services’ component. GST fOT these purposes shall include Integrated Goods and Services Tax, Central Goods and Services Tax, State Goods and Services Tax and Union Territory Goods and Services Tax.”
Hence, looking at the above circular it can be said that this circular only covers exemption for not deducting TDS only for “GST on service component” and not on goods component.
Thus, looking at the above explanation it can be said that this circular would only exempt GST component on service from TDS and hence TDS might be applicable on GST on goods and hence TDS u/s 194Q should be deducted on invoice value rather than taxable value.
However, earlier TDS was only applicable on services and not on goods and therefore the circular was covering only GST on service, hence we might see a new circular from government whereby they might cover GST on goods and exempt the same from TDS but till then TDS should be deducted on GST component.
To download the circular CLICK HERE.
Disclaimer: The views presented in the above article are personal views of our team and has no legal binding. For any legal opinion consult a tax professional.
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