Section 194Q: (TDS on Purchase of Goods above Rs. 50 Lakhs)

Section 194Q of Income Tax Act has been introduced vide Finance Bill 2021 and the same is effected from 1st July’2021.

This section puts the responsibility of the buyer to deduct TDS on purchase of goods from the resident seller.

There is also a section 206C (1H) which puts the responsibility on the seller to collect TCS on consideration received for the goods sold.

Now onwards Finance bill 2021 also brings the section 194Q which puts the responsibility on buyers to deduct TDS on purchase of goods / products for business.

What is section 194Q of Income Tax Act?

As per section 194Q any person, being a buyer who is responsible for making payment to any resident seller for purchase of any goods then buyer is responsible for deducting TDS, if the value of goods exceeds the particular limit i.e. Rs. 50 lakhs in the financial year.

When the section 194Q is applicable?

Section 194Q puts the responsibility of the buyer to deduct TDS on purchase of goods, but this section has its own applicability conditions.

Means if the following two conditions are present then only buyer needs to deduct TDS under section 194Q:

If the buyer gross sales/receipts/turnover from the business in the preceding financial year in which purchase was made exceeds Rs.10 crores; and
If the buyer’s aggregate amount of purchase in the current financial year exceeds Rs.50 Lakhs.

Also Read: TDS on Purchase of Immovable Property (Section 194IA)

When section 194Q is not applicable?

Section 194Q is not applicable

On transactions on which TDS is deductible under any other provision of this act;
On transactions which is covered under section 206c [except transaction covered under section 206c (1H)]

What is the rate of TDS under section 194Q?

Buyer has to deduct TDS of the aggregate amount of purchase of goods in the current financial year exceeding Rs.50 lakhs and turnover in the preceding financial year exceeds Rs.10 crores.

Than the TDS is to be deducted at the rate of 0.10%,
If the seller’s PAN is not available then TDS rate is 5%

TDS is to be deducted on the amount exceeding Rs.50 Lakhs.

Also Read: Section 271AAD: (Penalty for Fake Invoices / False Entry)

When TDS was deducted under section 194Q?

Under section 194Q of Income Tax Act TDS to be deducted by buyer

At the time of crediting the amount; or
At the time of making payment

whichever is earlier.

Important points for Section 194Q

In case section 194Q and section 206c (1H) apply simultaneously then section 194Q will prevail.
Seller must be resident for this section.
For this section TAN must be required for deducting TDS.
If there are any advance payments then also TDS to be deducted under this section.
Government by notification proposed to exempt persons from section 194Q on fulfillment of conditions.

Also Read: Section 194N of Income Tax Act (TDS on Cash Withdrawal)

How section 206c (1H) is different from section 194Q?

The provision of section 206c (1H) is mostly similar to the section 194Q. The difference is that section 206c (1H) is on the TCS (Tax collected at source) point of view.

As per section 206c (1H) seller is responsible for collection TCS if sales consideration received exceeds Rs.50 lakhs in previous year and along with that gross receipt of seller from business exceed Rs.10 crore in the preceding year.

So, TCS should be collected at the time of receipt at the rate of 0.10%.

Conclusion

Section 194Q on Income Tax Act (TDS on purchase of goods) puts the responsibility on the buyer to deduct TDS before making payment to any resident seller for purchase of any goods if the value of products exceeds Rs. 50 lakhs in the financial year.