Updated: 7 days ago
Are you a seller or buyer in India? If so, you might have come across the term ‘Section 194Q.’ This latest tax provision is causing a stir in the business world. It is designed to simplify tax deduction at source for certain transactions. Moreover, ever since its implementation, the 194Q TDS section has been a topic of both debate and appreciation.
This article will unravel the mysteries of Section 194Q so that you can be confident in your understanding of this new tax provision.
TDS Section 194Q: A Brief
On July 1, 2021, under the Income Tax Act, the Central Board of Direct Taxes introduced Section 194Q. It provides the framework for buyers purchasing goods from sellers in India that exceed INR 50 Lakhs and with a 0.1% TDS rate.
The income tax is deducted based on the buyer’s total sales, gross receipts, and turnover. The main idea behind implementing this section 194Q TDS is to track the huge amount of transactions without leveraging the GST amount.
This section helps in monitoring and detecting any fraud or fake transactions.
Section 194Q TDS Applicability
The section 194Q applies to:
A buyer whose annual turnover exceeds INR 10 crores for the previous financial year
Moreover, if the value of the purchased goods surpasses INR 50 Lakhs in the preceding year
The buyer has to make the payment to the resident seller
For instance, if you are a buyer who decides to purchase goods worth INR 25 lakhs from the same seller thrice in a row during the financial year, your seller has the power to deduct INR 50 lakhs from the total amount of the goods purchased, that means the TDS is now equal to 0.1% of INR 25 lakhs.
Time of TDS Deduction
Under Section 194Q of the Income Tax Act, the amount of TDS is to be deducted at the time of credit of the sum to the account of the supplier or during the payment, whichever is done earlier.
It means that if the payment is made by cheque, cash, draft, or any other means, TDS is to be deducted during the time of the payment. If, however, the payment is made by credit to the seller’s account, then TDS is deducted at the time of credit.
It is crucial to take note that if the sum is sent to the supplier’s account, but payment is made at a later date, TDS is required to be deducted during credit even if the payment is not made at that time. Similarly, if the payment is made during credit, the TDS is deducted at the same time.
Moreover, it is necessary to comply with the time of TDS deduction to avoid any penalties or interest charges.
Section 194Q TDS Deduction Rate
TDS under section 194Q is deducted at a rate of 0.1% if the value of the goods exceeds INR 50 lakhs in the ongoing financial year. However, if the PAN of the seller is not in handy, then the rate of TDS deduction goes up to 5%.
It is important to note that the Rs. The 50 lakhs threshold limit applies on a cumulative basis for the fiscal year, which means that all payments made to the same seller or service provider during the fiscal year will be aggregated to determine whether the threshold has been exceeded.
Exceptions For Section 194Q TDS
TDS deduction under the section 194Q has the following exceptions:
Under Section 194Q of the Income Tax Act, if a purchase transaction is covered under any other provision of the Act for TDS deduction, such as Section 194O for e-commerce transactions, then the TDS would apply as per that specific section instead of Section 194Q. There is an exception to this regulation under Section 206C(1H), which deals with the seller collecting tax (TCS) for the sale of goods if the consideration value exceeds Rs 50 lakh in any prior year.
If a purchase transaction is covered by both Section 194Q and Section 206C(1H) for TDS and TCS deduction, only Section 194Q will apply.
It should be noted that the applicability of TDS and TCS should be established based on the specific rules of the Income Tax Act, and it is recommended that you consult a tax expert to ensure compliance.
Under the Income Tax Act of 1961, Section 194Q TDS is an essential provision that works towards widening the tax base by bringing in more transactions under the TDS net. Being a responsible citizen and especially for someone who is involved in selling or purchasing goods, knowledge about 194Q is imperative. However, it is also necessary to ensure compliance with the provisions of Section 194Q to avoid any legal actions. Understanding the applicability and exemptions of Section 194Q can help businesses and individuals navigate their tax obligations effectively.
Q1. Is section 194Q applicable to imports as well?
No, section 194Q does not apply to imports. It is liable only when a buyer is required to pay an amount to a resident seller.
Q2. How is the 194Q TDS calculation done?
If the total value of the amount credited to the seller exceeds INR 50 lakhs in the particular financial year, then TDS is calculated at the rate of 0.1%.
Q3. What is the due date for submitting the TDS under Section 194Q?
The TDS calculated under section 194Q must be submitted on or before the 7th day of the month. In the case of March, the TDS depositing can be done up to April 30.
Q4. Is GST applicable on TDS?
No, GST (Goods and Services Tax) is not applicable on TDS (Tax Deducted at Source) because TDS is a form of income tax deducted by a person or entity while making payments to another party. In contrast, GST is a value-added tax levied on the supply of goods and services.
Q5. Who is eligible under Section 194Q for TDS deduction?
If a purchaser's gross receipts, total sales, or turnover in the previous financial year were over INR 10 crores, they are obligated to deduct TDS (Tax Deducted at Source) under section 194Q.