The Finance Act, 2021 has introduced new section 194Q which is effective from 1st July 2021. The provisions of new section 194Q require the specified buyer to deduct TDS on the purchase of goods from the resident seller.
Let us understand this provision by answering some questions.
When is TDS deductible under section 194Q?
TDS is deductible if:
- The buyer is responsible for making payment of a sum to the resident seller; and
- Such payment is to be done for the purchase of goods of the value/ aggregate of the value exceeding INR 50 Lakhs.
What do you mean by “buyer” under section 194Q?
The term ‘buyer’ means as under-
- A person having total sales/ gross receipts/ turnover exceeding INR 10 Crores in the immediately preceding Financial Year in which the specified purchase of goods took place (FY 2020-2021)
- Buyer will not include any person notified by the Central Government.
What is the time for deduction of Tax u/s 194Q?
TDS on purchase of goods is to be deducted by the buyer within earlier of the following dates-
- At the time of credit of the sum into the account of the seller; or
- At the time of payment of the sum thereof.
What is the rate for deduction of TDS u/s 194Q?
The buyer is liable to deduct TDS at the rate of 0.1% of the purchase value above INR 50 Lakhs.
[For e.g. If purchased value is Rs 52 lakhs, then (52-50= 2 lakhs), TDS= (2 lakhs*0.1%)]However, in case the Permanent Account Number (PAN) of the seller is not available. Then, the buyer would be liable to deduct tax @5%.
Any exemption available u/s 194Q?
TDS provisions covered under section 194Q are not applicable under the following cases-
- Transactions on which TDS is already deductible under other provisions of the Income Tax Act; or
- Transactions on which TCS is collectable as per provisions of section 206C [other than a transaction on which TCS is collectable under section 206C(1H)].
What if section 206C(1H) is also applicable?
Transactions, wherein, TDS is deductible under both the provisions i.e., section 206C(1H) and section 194Q. Under such cases, TDS would be deductible only under section 194Q.
What if buyer fails to deduct TDS u/s 194 Q?
In case the buyer fails to comply with the tax deduction provisions covered under section 194Q. Then, as per the provision of section 40a(ia), there would be disallowance of expenditure up to 30% of the value of the transaction.
Some other relevant points:
- TDS is also deductible under section 194Q against any amount credited to ‘suspense account’ or any other account under the books of accounts of the person liable to make payment of such income.
- Provisions of section 194Q are not applicable when the seller is a non-resident.
- As there is no specific mention, provisions of section 194Q apply to the purchase of both the types of goods i.e., capital as well as revenue.
Examples for clarification:
Example 1 –
Mr. Chandler, a buyer, having a total turnover of INR 65 Crores. Mr. Chandler purchases goods from Mr. Joey, a seller, worth INR 57 Lakhs.
Analysis of applicability of section 194Q in the given transaction is narrated hereunder-
- Since buyer’s turnover is above INR 10 Crores, provisions of section 194Q get applicable.
- Further, the buyer has purchased goods having a value of more than INR 50 Lakhs.
- TDS under section 194Q will be deductible by the buyer in the following manner-
Taxable amount: – 57-50= Rs.7 lakhs
Rate at which TDS to be deducted: 0.1%
Amount of TDS deductible= Rs. 700
Example 2 – Clarification regarding 194Q and 206C(IH)
Miss Rachel, a buyer, is having gross receipts of INR 70 Crores. Miss. Rachel buys goods from Mr. Ross worth INR 75 Lakhs. Notably, Mr. Ross, a seller, is having a turnover of INR 25 Crores.
Applicability of provisions of section 194Q in the above transaction is narrated hereunder-
- Provisions of section 194Q get attracted as the buyer is having gross receipts above INR 10 Crores.
- However, provisions of section 206C(1H) also get applicable as a seller is having a turnover above INR 10 Crores.
- Applicability of TDS/ TCS provisions are analyzed hereunder-
Since both, the provisions i.e., section 194Q and section 206C(1H) gets applicable. TDS would be deductible only under section 194Q as per the table below-
Taxable amount: – 75-50= Rs.25 lakhs
Rate at which TDS to be deducted: 0.1%
Amount of TDS deductible= Rs. 2500
