Updated on November 28, 2024 01:18:36 PM
TDS on purchase of goods under section 194Q has been introduced in the Finance Act 2021. Prime objective of the government introducing this section is to track transactions of large amounts of purchase of goods which will attract TDS deduction. As per this section, the buyer shall deduct tax at source (TDS) when making payment for the purchase of goods on an amount exceeding specified threshold. Know about the details of section 194Q like applicability, when to deduct, deposit, threshold limits etc.
Section 194 Q of The Income Tax Act, 1961 deals with the tax deducted at source (TDS) on purchase of goods. Any person (Buyer) on purchasing goods worth more than aggregate amount of ₹ 50 lakhs in a current financial year from a Resident person (Seller) has to deduct TDS @ 0.1% of sum in excess of ₹ 50 lakhs. For the purpose of this section goods can be “any goods” and also Buyer can be any buyer purchasing goods.
TDS u/s 194Q is applicable to a Buyer, who is responsible for paying any sum to any resident seller for purchase of goods exceeding the aggregate amount of ₹50 lakhs in a current financial year.
Definition of Buyer: Buyer means any person (including Sole proprietor, LLP, Partnership, companies) who is buying goods and whose total sales, gross receipts or turnover from business exceeds ‘₹10 crores’ during the preceding financial year.
First year of Incorporation: TDS under section 194Q is required to be deducted only if the buyer's last year turnover is more than ₹ 10 crores. Since in the case of first year of incorporation last year turnover is nil, so this section is not applicable in the first year of incorporation. Therefore, No TDS will be deducted under section 194Q.
The main objectives of section 194 Q are:
Threshold limit u/s 194Q:
Under section 194Q, TDS @ 0.1% will be deducted on a sum exceeding the aggregate amount of ₹50 lakhs in the current financial year. Therefore, no TDS on purchase of goods covered under section 194Q is required to be deducted if payment for goods is up to ₹50 lakhs in the current financial year.
TDS Rate u/s 194Q:
Rate of TDS u/s 194Q is given below:
PAN is furnished | Rate of TDS |
---|---|
PAN is furnished | 0.1% |
PAN is not furnished | 5% |
Note: It’s important to note that in all the cases when PAN is not furnished the rate of TDS is 20%. Only in the case of section 194Q which covers TDS on purchase of goods rate of TDS on purchase of goods is 5% when PAN is not furnished by the seller.
For example, If a buyer has purchased goods from any resident seller, say for ₹ 65 Lakhs. TDS @ 0.1% will be deducted on (₹65 Lakhs - ₹50 Lakhs) i.e.₹15 Lakhs
Therefore, TDS = 0.1%* 15 Lakhs = ₹1500.
TDS on purchase of goods u/s 194Q is deducted when:-
TDS on Purchase of Goods which is deducted and is required to be deposited to the central government. Time to deposit of TDS on Purchase of Goods is given below:
When TDS is deducted | When to deposit TDS |
---|---|
April - February | on or before 7th of next month |
March | on or before 30th April |
For example, Tax is deducted on 15th December and needs to be deposited on or before 7th January. Tax is deducted on 21st March; needs to be deposited on or before 30th April.
Scenario 1 | ||
TDS u/s 194Q | Buyer | Seller |
---|---|---|
Last Year Turnover | Exceeding ₹10 crores | Any turnover |
Sale Transaction | Exceeding ₹50 lakhs | Exceeding ₹50 lakhs |
Applicable | Buyer needs to deduct TDS u/s 194Q @ 0.1% on amount exceeding ₹50 lakhs |
Scenario 2 | ||
TCS u/s 206C(1H) | Buyer | Seller |
---|---|---|
Last Year Turnover | Less than ₹10 crores | Exceeding ₹10 crores |
Sale Transaction | Exceeding ₹50 lakhs | Exceeding ₹50 lakhs |
Applicable | Seller needs to deduct TCS u/s 206C(1H) @ 0.1% on amount exceeding ₹50 lakhs |
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In conclusion, section 194Q of The Income Tax Act,1961 ensures that tax is deducted at source on the purchase of goods on an aggregate amount exceeding ₹50 Lakhs by Buyer whose last year turnover exceeds ₹10 crores, that will be ultimately contributing to the government’s revenue while promoting compliance among businesses. Overall, section 194Q aims to improve the efficiency of tax collection and enhance the overall integrity of the tax system in India.
A TDS certificate (Form 16A) should be issued to the seller, detailing the amount of TDS deducted.
The TDS amount deducted is shown as a liability until it is deposited with the government.
Section 194Q specifically applies to the purchase of goods, not services. For services, other sections like 194J may apply.
TDS under section 194Q is still applicable regardless of the seller’s GST registration status, as it is based on Income tax regulations.
No, TDS deducted in a financial year cannot be carried forward; it must be adjusted in the same assessment year.