Section 194Q | TDS on Purchase of goods

Overview

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.

What is section 194Q TDS on Purchase of goods?

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.

Applicability of section 194Q TDS on Purchase of 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:

• Enhancing Tax Compliance: To ensure that taxes are collected at the source, thereby increasing compliance among buyers in the business sector.
• Broadening the Tax Base: By taxing purchases, the government aims to capture more transactions within the tax net, broadening the overall tax base.
• Preventing Tax Evasion: By mandating TDS on purchases, the section helps in reducing instances of tax evasion and under reporting of income b y sellers.
• Facilitating Revenue Generation: The collection of TDS on purchases contributes to the government’s revenue, helping fund public services and infrastructure.

TDS limit and Rate of TDS under section 194Q

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:

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.

Time of TDS Deduction on Purchase of Goods

TDS on purchase of goods u/s 194Q is deducted when:-

• At the time of credit of such sum to the account of the seller, or
• At the time of payment, whichever is earlier.

Time of TDS Deposition on Purchase of Goods

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:

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.

Some Exemptions u/s 194 Q

• TDS u/s 194Q is not applicable on Import of Goods. Therefore, whenever an Indian buyer purchases goods from outside India or from a foreign country on such a purchase from outside India no TDS is required to be deducted.
• No TDS on purchase of goods covered under section 194Q is required to be deducted, if TDS on purchase of goods is required to be deducted under any other provisions of this Act.
• No TDS on purchase of goods covered under section 194Q is required to be deducted if the amount does not exceed the aggregate amount of ₹ 50 lakhs in the current financial year.
• No TDS on purchase of goods covered under section 194Q is required to be deducted, if the Buyer of goods has business turnover less than ₹10 crores in the financial year immediately preceding the financial year in which the purchase of goods is carried out.
• If a seller of Goods has a turnover of more than ₹10 crores in previous financial year and buyer has a turnover less than ₹10 crores during the previous financial year, then Section 206C(1H) i.e TCS is applicable. Under Section 206C(1H), Tax collected at source (TCS) @ 0.1% will be collected by the seller on sale of goods on sale value exceeding ₹50 lakhs.

Penalties & Fines u/s 194 Q

• Disallowance u/s 40A(IA): If Buyer of goods fails to deduct TDS under section 194Q, then 30% of the Total Expenditure on which TDS has not been deducted will be disallowed as an expense. This will increase the taxable profit of the assessee.
• TDS is not deducted: If a deductor has not deducted the TDS from the excess payment of ₹50 lakhs, then it charges interest of @1% per month till the date TDS is deducted.
• TDS is deducted but not deposited: If a deductor has deducted the TDS from payment in excess of ₹50 lakhs, but has not deposited the collected tax to the government, then it charges interest @1.5% from the date when TDS is deducted till the date of deposition.

Some Important Points for TDS on Purchase of Goods

• TDS on purchase of goods u/s 194Q is always calculated without adding the GST component.
  For example, the taxable value of goods is ₹ 2 crores and rate of gst is 18%. Therefore, the invoice value of goods will be ₹ 2.36 crores. Now buyer (whose last year turnover exceeds ₹10 crores) at the time of making payment of goods is required to deduct TDS u/s 194Q on (₹2 crores - ₹50 Lakhs) i.e ₹1.5 crores @ 0.1% = ₹15 thousand.
• GST/VAT/Sales Tax/CST/Excise duty (Indirect taxes): TDS u/s 194Q is not applicable on Indirect Tax amount if it is separately indicated in Invoice but if advance payment is made then TDS should be deducted on total advance payment as we are not aware that what will be indirect tax amount in Invoice.
• While checking Last year turnover of Buyer it should include only business turnover or gross receipts and it should be more than ₹ 10 crores. Non business turnover not to be counted for TDS on purchase of goods.
• TDS is deducted at the time of crediting the party or payment, whichever is earlier. So at the time of purchase TDS is already deducted by the Buyer. In case of Purchase Return there is no need to return the TDS amount and it can be adjusted against future purchase from the same seller. In case of Replacement of Goods, no adjustment is Required.
• As per CBDT clarification: In case of a transaction to which both TDS and TCS is applicable,TDS is required to be deducted u/s 194Q only. Priority is given to TDS u/s 194Q and not TCS u/s 206C(1H).
• There may be multiple scenarios under which both section 206C(1H) i.e. TCS and section 194Q i.e. TDS applies, in order to avoid the confusion refer the tables given below to get a clear picture about the applicability of TCS section 206C(1H) and TDS section 194Q at their respective scenarios :

Why choose Bizfoc as a TDS Consultant?

At Bizfoc, we specialize in providing you the best accounting services in filing your TDS. Here are the reasons why we are known for our services to our clients on filing TDS:

• Assist in suggesting the right documents for TDS filing.
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• Prescribe forms as per the necessity.
• Helps in accurate computations for TDS computations and returns.
• Tailored advice and guidelines for TDS filing.

In general, we assist the client to solve their queries and doubts regarding the documentation, procedures, and fees for filling out the form. Other than making your filing successful, we help you make a better decision by covering every aspect of what you actually need to get your TDS.

Conclusion

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.

Frequently Asked Questions