File your ITR Hassle-Free and Maximise your Refunds
Trusted by 1 Million+ Users
4.8 Star User Rating
Authorized by Tax Department
Sec 194Q introduced in the finance act 2021 to cover the high volume transaction in the ambit of TDS. Under this section the buyer is liable to deduct tax on the purchase of goods exceeding threshold limit. The primary motive of this section is to increase transparency and be able to track large transactions. Now you must be wondering how does it actually work. Let us understand section 194Q of the Income Tax Act in detail.
Section 194Q of Income Tax Act, 1961 was introduced on July 1, 2021, by the Central Board of Direct Taxes. This section deals with the Tax Deducted at Source on the purchase of goods. It is predominantly a buyer-specific section that specifies the TDS provisions for buyers who purchase goods from Indian sellers.
Under section 194Q, buyers having purchases exceeding 50 lakhs in a previous year will have to pay a TDS at the rate of 0.1%. However, the same is not applicable to purchases made from a seller outside India.
Let’s take an example -
Mr. A., located in Delhi, bought goods worth 60 lakhs from Mr. B in Rajasthan in the previous year. Since the purchases exceed the threshold of INR 50 lakhs, the TDS will be calculated on (60 lakhs - 50 lakhs), i.e., 10 lakhs @ 0.1%.
Section 194Q is applicable to buyers making purchases in India in the following cases -
You must deduct the TDS when you either credit the seller's account or pay him in cash, whichever comes first. I.e., if you have not given any money in advance, you must withhold the TDS when buying the goods. But if you have already given some money in advance, you must withhold the TDS immediately.
| Particulars | Applicability/ Non-applicability of TDS u/s 194Q |
|---|---|
| TDS is deducted at the time of credit of the amount in the account of the seller; and Agreement/ contract between buyer and seller indicates GST component separately. | TDS provisions u/s 194Q will not be applicable to the GST component. |
| When TDS has been deducted on the payment basis (as payment is earlier than credit) | TDS provisions u/s 194Q will apply to the GST component (i.e. TDS is deductible on the whole amount) |
If a seller does not furnish Permanent Account Number (PAN) to the buyer, deductible tax at source (TDS) would be at 5% instead of 0.1%.
**Without PAN, the applicable tax rate in other cases is 20%. For Section 194Q, the TDS rate is 5%.**
The due date for filing a TDS return is July 31, October 31, January 31, and May 31, respectively, for a quarter ending 30th June, 30th September, 31th December, and 31st March.
If you fail to comply with the provisions and requirements of section 194Q of the Income Tax Act, it might attract severe penalties and consequences. Given below are the penalties for non-compliance on section 194Q -
Even though the buyers must deduct tax at source, here are a few cases in which the buyer is exempt from deducting any TDS.
The basic threshold for deduction of TDS under section 194Q is INR 50 lakhs. However, the calculation of this amount includes certain elements. Let us understand -
Now that you know all about section 194Q, it's time to go ahead and file your ITR. Tax2win provides both online ITR filing assistance and a CA-assisted ITR filing service. Get a CA now!
In case the seller fails to furnish the PAN details to the buyer, the buyer is liable to deduct TDS at the rate of 5% under section 194Q.
As per section 194Q of the Income Tax Act 1961, TDS should be deposited by the 7th day of the succeeding month in which it was deducted.
Section 194Q does not apply to government institutions and transactions made through recognized stock exchanges. Also, the transactions related to electricity and renewable energy are exempt from deducting TDS.
Section 194Q would not apply in cases where the TDS is to be deducted on the transaction of a purchase under any other provision of the ITA. For example, there may be a case where a purchase transaction comes under Section 194O as well as Section 194Q, then TDS would apply as per Section 194O, which relates to TDS on e-commerce transactions
If the buyer fails to deposit or deduct TDS, he has to pay interest at 1% p.m. from the due date to the day when TDS is actually deducted. If the buyer deducted the TDS but fails to deposit it on time, he has to pay interest at 1.5% p.m. from the TDS deduction date to the date when it is deposited.
The consequences of violation of 194Q are very severe, and if a violation occurs, it will hurt.
For example, a buyer purchased goods of Rs. 1.10 crore from a seller and forgot to deduct TDS on such a purchase. On the first 50 lacs, no TDS is required. But on another 60 lacs, there should be TDS @ 0.01%, i.e., Rs. 6,000/- which he didn’t deduct. For non-deduction of TDS of Rs. 6,000/-, section 40A (IA) will get attracted, and 30% of the purchase of 60 lacs i.e. Rs. 18 lacs, will be disallowed as expenditure. This means 18 lacs will be treated as income, and the buyer will be liable to pay tax on 18 lacs.
No, section 194Q is not applicable to imported goods. It applies only when the buyer purchases goods from a resident seller and is liable to pay money to the seller.
