Section 194Q of the Income Tax Act, 1961 in India pertains to the Tax Deducted at Source (TDS) on purchase of goods. It was introduced through the Finance Act 2021 and applies to buyers who are required to deduct TDS on the purchase of goods from sellers, subject to certain conditions.
Key Aspects of Section 194Q:
- Applicability:
- Section 194Q applies to any person (buyer) who is purchasing goods from a seller and whose total sales, gross receipts, or turnover from the business exceed ₹10 crore during the financial year immediately preceding the financial year in which the purchase is being made.
- It applies only when the total value of the purchase of goods from a seller during the year exceeds ₹50 lakh.
- Rate of TDS:
- The buyer is required to deduct 0.1% of the total purchase amount as TDS. However, if the PAN is not provided by the seller, the TDS rate increases to 5%.
- This TDS is deducted at the time of credit or payment, whichever is earlier.
- Threshold Limit:
- The TDS obligation under section 194Q arises when the aggregate amount paid to a seller exceeds ₹50 lakh during the financial year. For example, if the buyer purchases goods from a seller and the amount crosses ₹50 lakh, TDS at 0.1% will be applicable.
- When is TDS Deducted?:
- The TDS is deducted at the time of payment or credit to the seller’s account, whichever occurs first.
- Scope of Goods:
- Section 194Q applies only to the purchase of goods, which means it does not apply to services or the purchase of land, buildings, or other non-goods items.
- Exclusions:
- TDS under Section 194Q is not applicable if the purchase is made from a non-resident seller or if the goods are purchased for the purpose of export.
- Additionally, TDS will not be deducted if the seller is already deducting tax at source under another section, like Section 206C (TCS) (Tax Collected at Source) for certain goods.
- Seller’s Responsibility:
- The seller will issue a TDS certificate (Form 16A) to the buyer to confirm that the tax has been deducted.
- Payment of TDS:
- The TDS deducted must be deposited with the government on a quarterly basis, and the buyer must file the relevant TDS return.
- TDS Credit:
- The seller can claim the credit of TDS deducted under Section 194Q while filing their income tax returns. This helps reduce the seller’s tax liability.
Example:
- Buyer (X Ltd.) purchases goods from Seller (Y Ltd.) worth ₹60 lakh in the financial year 2022-23.
- As X Ltd. exceeds the threshold of ₹50 lakh, it needs to deduct 0.1% TDS, i.e., ₹60,000 (0.1% of ₹60 lakh).
- X Ltd. will then deposit this TDS amount with the government and issue a TDS certificate to Y Ltd..
Important Considerations:
- TDS on Purchases of Goods: Unlike other TDS sections, which apply to payments for services, salaries, etc., Section 194Q is specifically aimed at purchases of goods. The buyer is responsible for ensuring compliance with TDS provisions for any purchase exceeding ₹50 lakh.
- Reporting in TDS Returns: The buyer has to report the TDS deduction in the quarterly TDS return, and it is important to ensure that correct details are furnished to the seller.
Section 194Q, therefore, makes the buyer responsible for ensuring that the TDS is deducted from the payments made to the seller when the specified thresholds are met.