Section 194Q of the Income Tax Act, introduced by the Central Board of Direct Taxes (CBDT) in 2021, is a pivotal regulation that mandates Tax Deducted at Source (TDS) on certain high-value purchases of goods. This section aims to streamline the tax collection process and improve transparency in financial transactions.
In this guide, we’ll delve into the intricacies of Section 194Q, its applicability, eligibility criteria, exceptions, and key points to consider. We will also address some frequently asked questions to provide a holistic understanding of this important tax provision.
Section 194Q of the Income Tax Act was introduced as part of the Union Budget 2021 and came into effect on July 1, 2021. It mandates that buyers in India must deduct TDS at the rate of 0.1% on the purchase of goods if the value of the goods exceeds ₹50 lakh in a financial year. The primary objective of Section 194Q is to enhance tax compliance and ensure that high-value transactions are properly reported to the tax authorities.
This section applies to buyers who have a turnover, sales, or gross receipts exceeding ₹10 crores in the preceding financial year. It is crucial to note that Section 194Q targets buyers, not sellers, making them responsible for withholding tax on eligible transactions.
Section 194Q mandates that TDS is to be deducted on certain purchases of goods by buyers. It is applicable at the time of payment or credit, whichever occurs earlier. This section specifically targets the buyer, who must deduct TDS if the total value of purchases from a single seller exceeds ₹50 lakh in a financial year. The buyer must deduct TDS at a rate of 0.1% on the amount exceeding ₹50 lakh.
If both Section 194Q and Section 206C 1H (TCS on the sale of goods) are applicable to the same transaction, priority is given to Section 194Q. This means the buyer must deduct TDS rather than the seller collecting TCS.
TDS is required when the aggregate value of goods purchased from a single seller during a financial year exceeds ₹50 lakh.
The TDS provision under Section 194Q applies only to transactions involving resident sellers. It does not cover transactions with non-resident sellers or the import of goods.
The buyer must have a gross turnover, sales, or receipts exceeding ₹10 crores in the previous financial year. This criterion ensures that Section 194Q primarily affects larger businesses.
Example: If a buyer purchases goods worth ₹90 lakh from a seller, TDS will be applicable on the amount exceeding ₹50 lakh. In this case, TDS at 0.1% would be deducted on ₹40 lakh, amounting to ₹4,000.
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The buyer must meet specific criteria for TDS to be deducted under Section 194Q:
Section 194Q applies to the buyer only if their gross receipts or turnover exceeds ₹10 crore in the financial year preceding the purchase.
This TDS is applicable on the purchase of goods, not on services, and it must be deducted only on the portion exceeding ₹50 lakh.
TDS is to be deducted at the time of either credit or payment to the seller, whichever is earlier. This criterion ensures timely deduction and compliance with tax obligations.
There are several exceptions where TDS under Section 194Q is not applicable:
If the transaction is already subject to TDS under another section of the Income Tax Act (e.g., Section 194O for e-commerce transactions), then Section 194Q will not apply. The relevant section will govern the TDS deduction.
If the total purchase value from a single seller in a financial year is below ₹50 lakh, TDS under Section 194Q is not required.
If the buyer’s total sales, gross receipts, or turnover from the business in the previous financial year does not exceed ₹10 crores, Section 194Q does not apply.
Where the seller is already liable to collect TCS under Section 206C 1H, TDS under Section 194Q is not required if TCS has been collected. However, if both apply, TDS will take precedence.
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The buyer must deduct TDS under Section 194Q at the earliest of either the payment or credit of the amount to the seller. This includes situations where the buyer credits the amount to a suspense account or a similar account in their books.
Non-compliance with Section 194Q can result in severe consequences, including the disallowance of related expenses up to 30% of the transaction value. Therefore, buyers must ensure adherence to TDS deduction norms.
Section 194Q does not apply to transactions with non-resident sellers. It is specifically focused on transactions involving resident sellers.
The provisions of Section 194Q cover both revenue and capital goods purchases. Buyers must consider all types of goods when calculating the transaction value for TDS purposes.
If the seller does not provide a PAN, the TDS deduction rate increases to 5% instead of 0.1%. This higher rate serves as a deterrent for non-compliance with PAN requirements.
Section 194Q of Income Tax Act is a crucial regulation that plays a significant role in expanding the tax base and enhancing transparency in high-value transactions. By mandating TDS on purchases exceeding ₹50 lakh, the provision ensures that large transactions report and pay taxes properly. However, understanding the applicability, eligibility criteria, and exceptions to this section is essential for businesses to avoid penalties and ensure compliance.
For businesses that regularly engage in high-value purchases, staying updated with the provisions of Section 194Q and ensuring timely and accurate TDS deductions is important. This will help in maintaining proper tax practices and avoiding potential legal repercussions.
Section 194Q was introduced as part of the Union Budget 2021 and came into effect on July 1, 2021. It mandates TDS on purchases of goods exceeding ₹50 lakh in a financial year.
The buyer of goods is liable to deduct TDS under Section 194Q if their turnover, gross receipts, or sales in the previous financial year exceed ₹10 crores, and the purchase value from a single seller exceeds ₹50 lakh in the current financial year.
No, Section 194Q specifically applies to transactions involving resident sellers. It does not cover transactions with non-resident sellers or imports.
The TDS rate under Section 194Q is 0.1% of the amount exceeding ₹50 lakh. If the seller does not provide a PAN, the TDS rate increases to 5%.
Yes, exceptions include transactions already subject to TDS under other sections, transactions where the value is below ₹50 lakh, and transactions involving buyers with a turnover below ₹10 crores in the previous financial year.
Non-compliance with Section 194Q can result in the disallowance of related expenses, up to 30% of the transaction value, and other penalties. It is crucial to ensure proper adherence to TDS deduction requirements under this section.
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