Section 194Q- TDS on Purchase of Goods

By: Priyanka Jain - 15th March, 2021

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In this blog we are going to touch an important change bought in the tax law in recent budget announced by our Honb'le Finance Minister Ms Nirmala Sitharaman by proposing Section 194Q which will be in force from 1st July 2021.

So, let us understand what is Section 194Q, when is it applicable, at what rate TDS will be deducted, and so on.

What is Section 194Q?

Section 194Q is related to payment of certain sum as TDS for purchase of goods. Any buyer who pays any sum to the seller for purchase of goods whose aggregate value is above Rs. 50 lakhs, is at the time of crediting the sum to the seller's account or at the time of making payment is liable to deduct an amount equal to 0.1% as TDS of such sum exceeding Rs. 50 lakhs.

Who can be called as a buyer?

A buyer needs to be an assessee whose aggregate turnover in the immediate previous year was above Rs. 10 crores.

When is TDS Deducted u/s 194Q?

TDS is deducted:

  • At the time of crediting the sum to the seller's account; or
  • At the time of making payment by any mode

Whichever is earlier

Rates at which TDS is required to be deducted

Under Section 194Q of the Income Tax Act, 1961 TDS is required to be deducted at:

  1. 0.1% on sum exceeding Rs. 50 lakhs in any previous year
  2. 5% in case PAN of seller is not available
Cases where TDS u/s 194Q is not required to be deducted
  1. When TDS is deducted under any other section of the Income Tax Act
  2. When TCS under the provisions of Section 206C (where tax payable by a seller is collected from the seller at the time of sale) is applicable except when the transaction is covered u/s 206C(1H) (where seller is supposed to deduct tax at source and his turnover is more than Rs. 10 crores during the previous year).

This means that if TDS or TCS is required to be deducted then this section is not applicable. But when TCS u/s 206C(1H) is applicable along with this section then TDS u/s 194Q shall also be deducted.

Non-compliance of Section 194Q

If the buyer fails to deduct TDS u/s 194Q then 30% of the amount on which tax was supposed to be deducted will be disallowed as expenditure.

Example for deducting tax u/s 194Q

Seller's Turnover: Rs. 15 crores

Buyer's Turnover: Rs. 15 crores

Payment for purchase of goods in previous year: Rs. 55 Lakhs

Taxability:

Since the Buyer's Turnover is more than Rs. 10 crores, he will have to deduct TDS u/s 194Q on Rs. 5 lakhs (Rs. 55 lakhs- Rs. 50 lakhs) @ 0.1% which is Rs. 500.

TCS u/s 206C(1H) is not applicable as TDS u/s 194Q is deducted.

Note: In case seller's PAN is not available then TDS @5% will be deducted i.e., Rs. 25,000

How to deposit the TDS?

An assessee will have to make the payment electronically through internet banking facility or by way of debit cards. To deposit the tax, the deductor will have to fill Challan No. ITNS 281, or the TDS so deducted can also be deposited into any branch of the RBI or SBI or any authorised bank.

Due Date to deposit the TDS

Tax deducted during the month shall be deposited on or before the following due date:

Type of Deductor Mode of payment of TDS Due Date for deposit of TDS
Office of Government Without Income tax Challan ITNS 281 On the same day on which tax is deducted
With Income tax Challan ITNS 281 Within 7 days from the end of the month in which tax is deducted
Other Deductor With Income tax Challan ITNS 281
  • For April-February month: Within 7 days from the end of the month in which tax is deducted
  • For March Month: On or before April 30

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