TDS Section 194Q
A quick guide to section 194Q
This post will discuss Section 194Q of the Income Tax Act, including its functions and usage. We’ll discuss each section in detail :
TDS Section 194Q: Introduction
Section 194Q of the Income Tax Act, 1961, came into effect on July 1, 2021, introduced by the Central Board of Direct Taxes. According to this section, a 0.1% Tax Deducted at Source (TDS) is applicable when a buyer purchases goods beyond the exemption threshold of ₹50 Lakhs.
The government implemented this law to inspect large transactions, helping monitor and regulate doubtful or fraudulent transactions previously occurring under the list of TDS provisions.
Income tax is deducted solely from the buyer’s account, considering factors like total sales, turnover, and gross receipts. Section 194Q especially does not apply to imports from a non-resident supplier.
Applicability
Section 194Q applies to:
- A customer whose yearly turnover exceeded INR 10 crores in the preceding fiscal year.
- Furthermore, if the value of the acquired products exceeded INR 50 lakhs in the prior year.
- The buyer must make the payment to the resident seller.
For example- if you are a buyer who decides to buy products worth INR 25 lakhs from the same seller three times in a row within the fiscal year, your seller has the authority to deduct INR 50 lakhs from the total cost of the goods purchased, implying that the TDS is now equivalent to 0.1% of INR 25 lakhs.
TDS Deduction Rate
When buying products, be aware of TDS under Section 194Q:
- For businesses with the previous year’s earnings above ₹10 crores, purchasing items worth more than ₹50 lahks from the same seller during the current financial year requires deducting TDS (Tax Deducted at Source) at a rate of 0.1% on the amount exceeding ₹50 lahks.
- Remember, the ₹50 lakh restriction applies to each seller cumulatively throughout the year. Keep note of your overall purchases from each seller to ensure you do not miss out on deducting TDS once the limit is reached.
- Suppose the seller does not give you their Permanent Account Number (PAN), the TDS deduction rate increases to 5%. To prevent the greater deduction, make sure that you obtain their PAN.
Key Points to Remember:
- This applies to businesses with a turnover of more than ₹10 crore (prior year).
- Deduct TDS on purchases over ₹50 lakh (total per seller annually).
- TDS rate: 0.1% with PAN; 5% without PAN.
Role of GST in section 194Q
- The GST is excluded from the calculation of turnover.
- GST is included in the calculation of TDS at 0.1 per cent.
Calculation of TDS
- For purchases over Rs 50 lakh from a seller in a financial year, TDS would be deducted after deducting Rs 50 lakh from the total value of the purchases.
- The threshold limit is Rs 50 lakh, implying a seller-wise reduction in every fiscal year.
Example:
Let’s imagine a customer buys things for Rs 20 lakh from a seller thrice, for a total of Rs 60 lakh. Now, he must subtract Rs 50 lakh from the total items purchased. TDS must be deducted only on Rs 10 lakh at a rate of 0.1%.
When to deduct TDS?
The TDS is to be deducted when the amount is credited to the seller or paid to him, whichever happens first.
In other words, if you did not pay an advance, you must subtract this TDS when buying goods. However, if you made an advance payment, you must deduct TDS immediately.
Non-furnishing of PAN
If a seller fails to furnish a buyer with a Permanent Account Number (PAN), TDS will be deducted at a 5% rate rather than the usual 0.1%.
It is important to note that in the absence of PAN information, the tax rate for all other cases is 20%. The applicable TDS rate under Section 194Q is 5%.
Exceptions to Section 194Q
Section 194Q will not apply if TDS is to be deducted on a purchase transaction under another section of the Income Tax Act (ITA). For example, if a purchase comes under both Section 194O and Section 194Q, the TDS will apply Section 194O, which covers e-commerce transactions.
However, in the case of Section 206C(1H), where a seller collects tax (TCS) for sales above Rs 50 lakh per year, if a purchase transaction generates TDS under both Section 194Q and TCS under Section 206C(1H), only Section 194Q will apply.
Amendments under Section 194Q
- Suspense Account and Section 194Q: Section 194Q takes precedence over Section 206C(1H) for tax deductions on payments credited to suspense accounts.
- Section 194Q does not apply to purchases from non-resident merchants. This section only applies to transactions involving Indian resident sellers.
- Non-compliance with Section 194Q: Failure to deduct TDS as per Section 194Q may result in expenditure disallowance of up to 30% of the transaction value. To avoid such fines, you must comply with the tax deductions outlined in this section.
- TDS Rate under Section 194Q: If the seller holds a PAN card and the purchase exceeds ₹50 lakhs, the TDS deduction is 0.1% under this section. If the seller does not have a PAN, the deduction rate increases to 5%.
We have concluded this post on Section 194Q of the Income Tax Act. Feel free to share your views and opinions in the comment section below.
FAQ
1, What happens if you fail to provide the PAN?
Ans: If the seller fails to provide the buyer with the PAN data, the buyer must pay TDS at a rate of 5% under Section 194Q.
2, What is the deadline for submitting TDS?
Ans: According to Section 194Q of the Income Tax Act of 1961, TDS must be deposited by the 7th day of the following month in which it was deducted.
3, Is section 194Q relevant to the import of goods?
Ans: Section 194Q does not apply to imported items. It only applies when the customer acquires products from a resident seller and must pay the seller.
