2021-06-04 3033325

3033325 - FAQ on Tax Deducted at Source(TDS) u/s

194Q
Version 7 Type SAP Note
Language English Master Language English
Priority Recommendations / Additional Info Category FAQ
Release Status Released for Customer Released On 04.06.2021
Component XX-CSC-IN-FI ( Financial Accounting )

Please find the original document at https://launchpad.support.sap.com/#/notes/ 3033325

Symptom

Government inserted new TDS Section 194Q which will be effective from 01-July-2021, which says 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 Financial 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.

Reason and Prerequisites

Q1. What is TDS u/s 194Q?

Q2. Is TDS applicable on service procurement?

Q3. Will TDS and TCS both be applicable?

Q4. How will seller restrict collection of TCS as buyer would deduct TDS?

Q5. TDS solution on Sales/Seller/Accounts receivable side?

Q6. Is TDS applicable on goods like Timber, Tendu leaves, Alcoholic liquor, scrap etc where TCS u/s 206c is
applied?

Q7. TDS is applicable only on goods, so can both goods and service be clubbed in a single invoice?

Q8. What if buyer is buying tendu leaves u/s 206c and plastic box u/s 194Q from the seller? How to handle
this?

Q9. Witholding tax codes and types are assigned at vendor master level. So how to restrict TDS u/s 194Q for
purchases like timber, tendu leaves, scrap etc..?

Q10. Are there any exemptions from TDS for any suppliers like central govt, state govt etc?

Q11. What if buyer's turnover is not exceeded 10 crores in the last FY? How do we turn off tax deduction?

Q12. What is the significance of TAN exemption in supplier master? What is the certificate no that should be
maintained?

Q13. For 50 Lacs threshold check the purchase consideration should be from 01.04.2021 or 01.07.2021?
How to handle it?

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Q14. a. What if TCS is already charged by seller before 30.06.2021 and the buyer is posting incoming invoice
after 01.07.2021?
b. What will happen to TCS charged by seller? Will it not lead to double taxation?

Q15. TDS is posted at the time of invoice but why is TDS again getting calculated at the time of actual
outgoing payment to supplier?

Q16. As per the budget-2021 if the supplier has not furnished IT returns filed for last 2 years and the total
TDS/TCS is equal to or more than 50000 INR then TDS to be deducted at higher rate. How to handle this?

Q17. TDS applicability on stock transfer/ purchase of goods from one branch to another?

Q18. TDS treatment for Purchase returns?

Q19. Can a seller apply for certificate for lower deduction of TDS?

Q20. Will accumulation work for supplier created across multiple company codes?

Q21. How to deduct higher TDS u/s 206AB if the supplier has not furnished IT returns for last 2 years?

Q22. Will there be any indicator to identify if supplier has filed IT returns for last 2 years or not and if total
TDS/TCS is equal to or more than 50000 INR?

Q23. What if Supplier Furnishes PAN in the middle of the FY. How to handle this?

Q24. How to Handle threshold maintenance if PAN is provided by supplier in the middle of FY?

Q25. Higher TDS to applied if PAN is linked to AADHAR. How to handle this?

Solution

Q1. What is TDS u/s 194Q?

A1. TDS to be deducted by the buyer @0.1% rate on purchase of goods if-

• The buyer’s previous year turnover has exceeded 10 Crore INR

• Invoice purchase value or aggregate of such purchase value exceeds 50 lacs
• TDS to be deducted at the time of invoice or payment whichever is earlier

Q2. Is TDS applicable on service procurement?

A2. TDS is not applicable if-

• Tax is collectible under the provision of 206c other than 206c(1H)

• Goods is imported
• On Purchase of service

Q3. Will TDS and TCS both be applicable?

A3. On a single transaction either TDS or TCS one of it would apply. TDS will take precedence and if buyer is
not liable to deduct TDS then seller should collect TCS.

Q4. How will seller restrict collection of TCS as buyer would deduct TDS?
A4. Please follow the resolution part from Note- 3044961

Q5. TDS solution on Sales/Seller/Accounts receivable side?

A5. It is Legally not required by the seller to capture TDS in the outgoing side as the buyer will be depositing

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2021-06-04 3033325

the deducted tax against PAN/Aadhar of the seller and the same can be adjusted by the seller against his/her
income tax liability.
In order to be able to close the open invoices on payment receipt users can post the balance amount which
buyer has deducted to a separate TDS account and clear it manually after receipt of TDS certificate from
buyers by end of every quarter.

Q6. Is TDS applicable on goods like Timber, Tendu leaves, Alcoholic liquor, scrap etc where TCS u/s 206c is
applied?
A6. No TDS is applicable only on goods other than what is specified under the provision of 206c(1), (1g), (1F)
like scrap, timber, tendu leaves etc..

Q7. TDS is applicable only on goods, so can both goods and service be clubbed in a single invoice?
A7. TDS will be applied at header level and not line item level so if goods and services both are clubbed in a
single invoice then TDS will be applicable on the entire invoice value.
So one should not post goods and service together in the same invoice.

Q8. What if buyer is buying tendu leaves u/s 206c and plastic box u/s 194Q from the seller? How to handle
this?
A8. TDS will be applied at header level and not line item level so goods u/s 206c and 194Q cannot be
clubbed in the same invoice; Else on goods bought u/s 206c, TCS and TDS both will get applied.
So it is suggested to post separate invoices for such purchases.

Q9. Witholding tax codes and types are assigned at vendor master level. So how to restrict TDS u/s 194Q for
purchases like timber, tendu leaves, scrap etc..?
A9. If from the same supplier normal goods and goods like timber, tendu leaves, scrap etc.. are purchased
then this has to be handled at transaction level, one has to remove the withholding tax codes created for
194Q under "Witholding tax tab" while posting the transaction through MIRO, FB60, Advance payments etc..

Q10. Are there any exemptions from TDS for any suppliers like central govt, state govt etc?
A10. As of now govt has not notified any suppliers to be exempt from TDS u/s 194Q.

Q11. What if buyer's turnover is not exceeded 10 crores in the last FY? How do we turn off tax deduction?
A11. If buyer's turnover is not above 10 crores then the buyer is not liable to deduct TDS u/s 194Q, so such
buyers should not assign Witholding tax types and tax codes in supplier master for 194Q.
As there is no tax type and tax code in supplier master assigned; TDS will not be deducted u/s 194Q for such
suppliers.

Q12. What is the significance of TAN exemption in supplier master? What is the certificate no that should be
maintained?
A12. TAN exemption feature in supplier master is used to do threshold check of 5000000 INR upto which no
TDS to be deducted.
Certificate no should be "TDSU/S194Q" only as this value will be used for validation during quarterly returns
filing.

Q13. For 50 Lacs threshold check the purchase consideration should be from 01.04.2021 or 01.07.2021?
How to handle it?

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A13. The purchase consideration should be from 01.04.2021.

So when you maintain the value under Exem. threshold column in TAN exemption tab ensure that you have
considered all the invoices, downpayments, credit notes, debit notes, cancelation entries, any litigation
documents for the supplier that you want to exclude and then update the value.
There is no standard report to arrive at the values as this will be used only for this FY.

Example: If the purchase consideration (including invoices, downpayments, credit notes, debit notes,
cancelation entries etc)from XYZ supplier as on 30.06.2021 is 4000000 INR then you will have to update
1000000 INR(5000000 - 4000000) under Exem. threshold column.

Q14. a. What if TCS is already charged by seller before 30.06.2021 and the buyer is posting incoming invoice
after 01.07.2021?
A14. a. As per the explanatory memorandum to Budget 2021, if on a transaction TDS is deducted under
section 194Q, then TCS is not required under sub-section (1H) of section 206C and not vice versa.
Accordingly, in the above case TDS under section 194Q is applicable even on the transactions on which TCS
under section 206C (1H) has already been applied till June 2021.

Q14 b. What will happen to TCS charged by seller? Will it not lead to double taxation?
A14 b. Buyer will get the TCS credit while filing his income tax return and this will automatically appear in
Form 26AS of the buyer [Tax credit statement]
Seller will get TDS credit and Buyer will get TCS credit automatically while filing their respective income tax
returns

Q15. TDS is posted at the time of invoice but why is TDS again getting calculated at the time of actual
outgoing payment to supplier?
A15. If you have assigned both invoice time and payment time tax types and tax codes in supplier master
then while posting invoice you should remove payment time tax code and have only invoice time tax code.

Q16. As per the budget-2021 if the supplier has not furnished IT returns filed for last 2 years and the total
TDS/TCS is equal to or more than 50000 INR then TDS to be deducted at higher rate. How to handle this?
A16. If your supplier has not furnished It returns and the TDS/TCS is equal to or more than 50000 INR then
follow resolution from KBA-3031916

Q17. TDS applicability on stock transfer/ purchase of goods from one branch to another?
A17. If the PAN of the Selling unit and buying unit are the same then no TDS to be deducted.

Q18. TDS treatment for Credit memos?

A18. There are 2 ways of handling this-
a. If TDS not to be reversed in case of Credit memos posted for purchase returns then remove the tax code
while posting credit memos.
b. If TDS is deducted at the time of invoice and is already paid to tax authority then during credit memo TDS
deducted can be adjusted against subsequent invoice provided reference
is entered correctly for the same vendor and section of IT Act

Q19. Can a seller apply for certificate for lower deduction of TDS?
A19. Yes a seller can apply certificate for deduction of tax at lower rates. However Finance Bill 2021 has not
proposed to extend the benefit to apply for a certificate for deduction of tax at lower rates or to file declaration
for nil deduction in respect of transactions covered under Section 194Q.

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Q20. Will accumulation work for supplier created across multiple company codes?
A20. No. For India all transactions and postings happen at company code level and if one supplier is created
across multiple company codes then accumulation will not work.
Ideally one PAN should be linked to one company code only. If for different branches you are trying to have
different company codes then section code should be used instead.

Q21. How to deduct higher TDS u/s 206AB if the supplier has not furnished IT returns for last 2 years?
A21. Please follow resolution from Note- 3031916

Q22. Will there be any indicator to identify if supplier has filed IT returns for last 2 years or not and if total
TDS/TCS is equal to or more than 50000 INR?
A22. No we will not provide any indicator at supplier master level as this will just be an additional
maintenance activity.
The user should still maintain correct withholding tax type and tax code with higher rates if the same is not
furnished.

Q23. What if Supplier Furnishes PAN in the middle of the FY. How to handle this?
A23. If the supplier furnishes PAN in the middle of the FY then update PAN no and correct tax type and tax
codes with lower TDS rate in supplier master.
Ensure that all the open documents are taken care of before updating withholding tax types and tax codes
with lower rate.

Q24. How to Handle threshold maintenance if PAN is provided by supplier in the middle of FY?
A24. a. If for a supplier who has not furnished PAN, threshold of 20 Lacs is maintained as on 01.07.2021 and
purchase of 17 Lacs has happened till 30.09.2021 after which the supplier provides PAN no. Then in the
supplier master, new tax type and tax code with lower rate will be updated and Exem threshold Amount of 3
Lacs should be updated.

b. If for a supplier who has not furnished PAN, threshold of 20 Lacs is maintained as on 01.07.2021 and
purchase of 45 Lacs has happened till 30.09.2021 with higher TDS applied on purchase of 25 Lacs after
which the supplier provides PAN no. Then in the supplier master, new tax type and tax code with lower rate
will be updated and nothing to be maintained under exemption tab as threshold is already crossed.

Q25. Higher TDS to applied if PAN is linked to AADHAR. How to handle this?
A25. From the income tax portal, one can check the status if PAN is linked to AADHAR. If not then tax types
and tax codes with higher rate should be assigned in supplier master.

This document is referenced by

SAP Note/KBA Title

3032781 Amendment changes to Section 194Q TDS - Updates

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