Section 194Q of the Income Tax Act 1961, explains the criteria for buyers of goods (not services!) for TDS on purchase of goods from their sellers.
Read on to understand Section 194Q in detail and its impact on your business.
What is Section 194Q?
Section 194Q was announced in the Union Budget of 2021, to be made effective from 1st July 2021.
This section is applicable in the following cases:
- If the buyer has a turnover of more than Rs 10 crore in the last year
- If the buyer is responsible for making a payment to the seller for the purchase of goods
- If that payment is for the purchase of goods exceeding Rs 50 lakh
For example, a Buyer A made a turnover of Rs 15 crore in the year ended March 31st, 2021. Buyer A also has Seller B who sold him goods worth Rs 60 lakh in the same year.
Under Section 194Q, Buyer A would need to deduct TDS on purchase of goods from Seller B for the year 2021-22 on Rs 10 lakh, the amount that exceeds Rs 50 lakh.
It’s important to remember that this section only applies to goods, and not services!
When is TDS deducted under Section 194Q?
The buyer, also called the deductor, should deduct TDS on purchase of goods when the invoice amount is sent to the seller. This could be at the moment of purchase, or at a later date.
It is important to note that TDS on purchase of goods under Section 194Q only applies to the purchase of goods from resident Indian sellers and not to the purchase of imported goods.
What is the TDS rate under section 194Q?
TDS on purchase of goods is deducted at 0.1% if the seller has a PAN. If the seller fails to furnish a PAN identification, TDS is deducted at 0.5%
Note: Since Section 194Q came into effect on 1st July 2021, if the buyer has credited or paid any money before that, section 194Q will not be applicable to that amount.
[Also read: TDS Rate Chart FY 2022-2023]
Example to understand Section 194Q
Let’s say a buyer purchases goods from an Indian seller worth Rs. 90 lakhs.
Here, the TDS payment would be deducted on Rs 40 lakh, at the rate of 0.1%, as Section 194Q mandates TDS to be deducted only on amounts exceeding RS. 50 lakh.
The TDS payment of Rs. 4000 needs to be deducted from Rs. 90 lakhs at the time of payment or crediting of the invoice amount.
Note: The TDS on purchase of goods would be deducted at 5% if the seller fails does not furnish PAN.
Cross applicability – Section 194Q, Section 194O and 206C
- If the buyer is supposed to deduct TDS on purchase of goods according to Section 194Q, then 204C (1H) on TCS collection would not apply to the seller
- If the purchase transaction comes under both sections 194O and 194Q, then TDS will be applicable as per section 194O
TDS and TCS are important concepts for all business founders to be aware of. Luckily, we have a number of easy-to-understand blogs explaining all these tax concepts, and more! Take a look at our business banking plus blogs and expand your knowledge.
Read more: What is TDS
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