Section 194Q of Income Tax Act, 1961 was introduced on July 1, 2021, by the Central Board of Direct Taxes. This section deals with the Tax Deducted at Source on the purchase of goods. It is predominantly a buyer-specific section that specifies the TDS provisions for buyers who purchase goods from Indian sellers.
Under section 194Q, buyers having purchases exceeding 50 lakhs in a previous year will have to pay a TDS at the rate of 0.1%. However, the same is not applicable to purchases made from a seller outside India.
Let’s take an example –
Mr. A., located in Delhi, bought goods worth 60 lakhs from Mr. B in Rajasthan in the previous year. Since the purchases exceed the threshold of INR 50 lakhs, the TDS will be calculated on (60 lakhs – 50 lakhs), i.e., 10 lakhs @ 0.1%.
What is Section 194Q TDS?
Section 194Q of the Income Tax Act, introduced in 2021, is a provision for Tax Deducted at Source (TDS) applicable to specific high-value goods purchases. It targets buyers with a certain turnover threshold, requiring them to withhold a portion of the payment as TDS. This mechanism aims to improve tax collection and transparency in financial dealings. Failure to comply with Section 194Q can lead to penalties and disallowance of expenditure.
Applicability of TDS deduction under Section 194Q
- Buyer: The provision applies to a buyer making payments for the purchase of goods to a resident seller (seller based in India). It is not applicable to imported goods.
- Purchase Value: The total value or cumulative value of goods purchased from the same seller in a financial year exceeds ₹50 lakhs.
- Buyer’s Turnover: The buyer’s total sales, gross receipts, or turnover from their business in the previous financial year must be more than ₹10 crore.
Who does Section 194Q of the Income Tax Act apply to?
- Any buyer with a total turnover, gross receipts, or sales exceeding 10 crores in the previous financial year.
- The buyer purchases goods from an Indian seller and is liable to make payment to a resident Indian seller.
- The payment made should be for the purchase of goods exceeding the aggregate value of 50 lakhs.
- The introduction of section 194Q helps the government to trace the huge amount of transactions without compliance of various tax provisions and to identify the cases of under disclosure of Income
What is the role of GST in Section 194Q?
- GST is excluded from the calculation of turnover
- GST is included in the calculation of TDS at the rate of 0.1%
When to deduct TDS?
| Particulars | Applicability/ Non-applicability of TDS u/s 194Q |
|---|---|
| TDS is deducted at the time of credit of the amount in the account of the seller; and Agreement/ contract between buyer and seller indicates GST component separately. | TDS provisions u/s 194Q will not be applicable to the GST component. |
| When TDS has been deducted on the payment basis (as payment is earlier than credit) | TDS provisions u/s 194Q will apply to the GST component (i.e. TDS is deductible on the whole amount) |
What Happens If You Fail to Comply With Section 194Q of the Income Tax Act?
If you fail to comply with the provisions and requirements of section 194Q of the Income Tax Act, it might attract severe penalties and consequences. Given below are the penalties for non-compliance on section 194Q –
- If the buyer does not deduct TDS, it attracts a penalty under section 40A (IA). As per this section, if the buyer fails to deduct TDS, 30% of the total purchases on which TDS has not been deducted will be disallowed as an expense.
- Consequently, this 30% will be treated as your income and will be liable to tax. 30% of the total purchases will be clubbed into your net income and taxed along with your total income.
Exemptions Available Under Section 194Q of the Income Tax Act
- If the buyer does not primarily reside in India and the goods purchased are not directly connected with India, the buyer does not have to deduct TDS.
- The buyer does not need to deduct TDS in the year of incorporation. For example, if your company has been incorporated in the current financial year, you are not required to deduct TDS.
- If the buyer purchases products from a seller whose income is exempt from tax, then the buyer does not have to deduct TDS.
- If the tax is deducted under section 206C, excep31str transactions on which 206C(1H) is applicable, Such transaction shall not be taxable under section 194Q.
- Any purchases made by the central or state government institutions are not required to deduct TDS.
- If any transaction attracts both section 194Q and section 194O, tax shall be deducted under section 194O by the e-commerce platform provider. However, if the e-commerce platform fails to deduct the TDS, the buyer is responsible for the same.
- If a stock exchange purchases goods or commodities, it is exempted from deducting TDS. Transactions involving renewable energy and electricity are also exempted from deducting TDS.
FAQs
Which cases do not require the application of section 194Q?
Section 194Q does not apply to government institutions and transactions made through recognized stock exchanges. Also, the transactions related to electricity and renewable energy are exempt from deducting TDS.
Section 194Q would not apply in cases where the TDS is to be deducted on the transaction of a purchase under any other provision of the ITA. For example, there may be a case where a purchase transaction comes under Section 194O as well as Section 194Q, then TDS would apply as per Section 194O, which relates to TDS on e-commerce transactions
What is the last date for depositing TDS?
As per section 194Q of the Income Tax Act 1961, TDS should be deposited by the 7th day of the succeeding month in which it was deducted.