Sec 194Q introduced in the finance act 2021 to cover the high volume transaction in the ambit of TDS. Under this section the buyer is liable to deduct tax on the purchase of goods exceeding threshold limit. The primary motive of this section is to increase transparency and be able to track large transactions.
What is Section 194Q of Income Tax Act?
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%.
Who does Section 194Q of the Income Tax Act apply to?
Section 194Q is applicable to buyers making purchases in India in the following cases –
- 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) |
Non-furnishing of PAN
If a seller does not furnish Permanent Account Number (PAN) to the buyer, deductible tax at source (TDS) would be at 5% instead of 0.1%.
**Without PAN, the applicable tax rate in other cases is 20%. For Section 194Q, the TDS rate is 5%.**
TDS Return: Form 26Q
The due date for filing a TDS return is July 31, October 31, January 31, and May 31, respectively, for a quarter ending 30th June, 30th September, 31th December, and 31st March.
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.
When The Person Is Liable To Deduct TDS?
The person being the buyer will deduct TDS at the time which is earlier of the following:
- At the time of credit of such sum to the account of the seller.
- At the time of payment which is obtain in any mode.
TDS Rate
The tax deduction at source(TDS) is deducted at
- 1% on the purchase of goods if the seller has its PAN
- If the seller does not hold PAN then 5% TDS will be deducted.
Due Date Of Depositing TDS With Government
The due date for TDS payment is always the 7th day of the next month, with a few exceptions. For example, if an organization wants to pay TDS for the month of July, then the TDS payment due date for the same will be the 7th of August.For the month of March, the due date will be 30th April.
Due Dates Of Returns
| Quarter | Period | Due date |
| Q1 | April – June | 31st July |
| Q2 | July – September | 31st October |
| Q3 | October – December | 31st January |
| Q4 | January – March | 31st April |
How to Calculate the Threshold Limit for Section 194Q?
- While calculating the threshold limit, the amount of purchase will be taken without including the amount of GST.
- If the buyer makes an advance payment, then TDS should be deducted from the whole amount, including GST, as it is difficult to distinguish the GST component.
- If the seller returns the money at the time of the transaction, then TDS can be adjusted later against another purchase transaction.
- If the seller replaces the goods returned by the buyer, no TDS adjustment can be made later.
FAQs
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.
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