Section 194Q of the Income Tax Act 1961, effective from 1st July 2021, mandates TDS on purchase of goods.
Read on to understand Section 194Q in detail and its impact on your business.
What is Section 194Q?
Section 194Q announced in Union Budget 2021 is applicable on TDS payments for purchase of goods if the amount of purchase exceeds
- Rs. 50 lakh in the current financial year
- Rs. 10 crore in the preceding financial year
Note: The amount of purchase refers to the aggregate sale, annual turnover, or total gross receipts of a business.
When is TDS deducted under Section 194Q?
The buyer (deductor) should deduct tax at source (TDS) when the invoice amount is credited to the seller’s account or at the time of full payment, whichever is earlier.
Note: TDS under Section 194Q is applicable only on purchase of goods from a resident Indian seller. And, it does not apply to imported goods.
What is the TDS rate under section 194Q?
Tax deducted at source (TDS) is deducted at 0.1% on purchase of goods if the seller has a PAN. And, at 5% if the seller fails to furnish PAN.
Note: Since Section 194Q has come into effect from 1st July 2021, if the buyer has credited or paid any sum before that, then section 194Q will not be applicable on that amount.
Example to understand Section 194Q
Let’s say a buyer purchases goods from a resident 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.
So, 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 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 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 194 Q, then TDS will be applicable as per section 194O
We hope this helped you understand Section 194Q on purchase of goods & its impact. Subscribe to our weekly newsletter and stay updated on all the recent tax changes & their effect on your business.