Section 194Q of the Income Tax Act, 1961, was introduced by the Central Board of Direct Taxes and made effective from July 1, 2021. Under this section, a 0.1% TDS is applicable if the amount exceeds ₹50 Lakhs when a buyer purchases goods beyond the exemption threshold.

 

The government has framed this law to audit huge amounts of transactions. It helps in tracking and controlling frivolous or fake transactions that were taking place under the name of TDS provisions.

 

Income tax is only deducted from the buyer’s account. The amount is calculated after taking into consideration the total sales, turnover, and gross receipts. Additionally, Section 194Q doesn't apply to imports from a non-resident supplier.

When is Section 194Q Applicable?

Under Section 194Q, TDS will be deducted on purchases that have been made after 1st July, 2021. However, the upper limit of purchase of ₹50 Lakhs is to be considered from 1st April, 2021.

 

Section 194Q applies to sellers in the following cases: 

  • When the buyer’s turnover, gross receipt or sales, exceeds ₹10 Crores for the previous financial year 

  • When the buyer is liable for making payments to a resident seller 

  • When the payment is to be made for purchase of goods whose total values exceeds ₹50 Lakhs

  • Payment made for purchase of goods with the value exceeding ₹50 Lakhs 

 

Here’s an example to help you understand the applicability of Section 194Q. 

 

Suppose you are a buyer who decides to purchase goods worth ₹25 Lakhs each time and you’ve purchased from the same seller thrice during the financial year. In this case, the threshold of ₹50 Lakhs applies to the total value of goods purchased from the seller throughout the financial year. TDS is applicable on the amount exceeding this threshold.

PAN-integration for TDS Deduction under Section 194Q

If the seller hasn't provided their PAN to the buyer, TDS will be deducted at 5% instead of 0.1%. It’s important to remember that without this information, the tax rate that will be implemented in other cases will be 20%. 

 

However, for Section 194Q, the applicable TDS rate when PAN information is not linked is 5%.

Exceptions to Section 194Q

Here are a few instances where Section 194Q is not applicable on a transaction: 

  • TDS is to be deducted on a purchase transaction under any other Income Tax Act provision

  • Transactions falling under sections 194Q and 194O, where TDS will apply as per Section 194O 

  • TCS is to be done under Section 206C, where TDS deduction is not applicable under Section 194Q

  • Seller is a non-resident Indian 

 

However, it’s important to note that there exists an exception under Section 206C(1H). This involves the Tax Collected at Source (TCS) by the seller for sales of goods exceeding ₹50 Lakhs in the preceding financial year. If TDS is applicable on a transaction for goods under both Section 194Q and TCS under Section 206C(1H), only Section 194Q will apply.  

Calculating Purchase Return under Section 194(Q)? 

As far as purchase returns are concerned, tax deductions occur at the time of payment credited to the buyer’s account. In case any of the purchase return takes place, the money deducted as TDS on purchase of goods from the buyer’s account will be refunded by the seller. 

 

Another option could be that the tax deduction may get adjusted in the next purchase made with the same seller. In case the goods get exchanged or replaced, then no tax adjustments will take place. 

Amendments under Section 194Q

Here are a few amendments made under Section 194Q: 

  • TDS is deducted for amounts credited to a 'Suspense account' or other accounts by a person obligated to make the payment

  • Non-compliance may lead to a 30% disallowance of expenditure based on the transaction value for the buyer

  • Provision u/s 194Q is applicable on purchases of both types of goods i.e., revenue and capital

FAQs on Section 194Q of the Income Tax Act, 1961

What is Section 194Q of TDS?

Section 194Q serves as a guide to buyers who are purchasing goods from sellers in India exceeding ₹50 Lakhs during the preceding financial year.

What is the tax rate applicable under Section 194Q?

Tax is deducted at 0.1% on amounts exceeding ₹50 Lakhs when buying goods above the exemption threshold of ₹50 Lakhs.

Does Section 194Q apply to imports as well?

Section 194Q does not apply to import purchases that have taken place from a supplier who is not residing in India.

What is the role of GST in computation of TDS under Section 194Q?

When calculating the total turnover, you do not have to account GST. However, when you’re calculating your TDS to be paid, you must account for GST.

When should TDS be calculated under Section 194Q?

TDS should be accounted for and deducted when the amount is credited or paid to the seller, depending on whichever is earlier.

Whom does Section 194Q apply for?

Section 194Q applies to sellers in the following cases: 

  • When the buyer is liable for making payments to a resident seller 

  • When the buyer’s turnover, gross receipt or sales exceeds ₹10 Crores for the previous financial year

  • When the payment is to be made for purchase of goods whose total values exceeds ₹50 Lakhs

What is the due date for depositing TDS under Section 194(Q)?

You must deposit your TDS on or before the seventh day of the month following the month during which the TDS was deducted. However, in the case of March’s TDS, the amount deducted can be deposited by April 30 without attracting any penalty.

Is Section 194Q applicable to charitable trust?

Yes. Section 194Q is applicable to trusts engaged in business under Section 11(4A) only if the business profits are applied to the trust's main object of charity.

What is the TDS limit for Section 194Q?

TDS under Section 194Q is deducted at a rate of 0.1% when the value of goods exceeds ₹50 Lakhs in the current financial year. In cases where the PAN of the seller is not available, the TDS deduction rate increases to 5%.

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