Section 194Q of the Income Tax Act 1961: Tax Deduction on Purchase of Goods

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.

The present article covers briefing of provisions of section 194Q section applicability with examples, rates, exemption and other important aspect of section 194Q.

(1.) Applicability of Provision:

  • 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 in any previous year.

Here, Buyer Means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out, not being a person, as the Central Government may, by notification in the Official
Gazette, specify for this purpose.

(2.) Time of deduction:

TDS on purchase of goods is to be deducted by the buyer within earlier of the following dates-

(a) At the time of credit of the sum into the account of the seller; or

(b) At the time of payment of the sum thereof.

(3.) Rate of TDS deduction under Section 194Q:

The buyer is liable to deduct TDS at the rate of 0.1% of the purchase value above INR 50 Lakhs.

However, in case the Permanent Account Number (PAN) of the seller is not available. Then, the buyer would be liable to deduct tax @5%.

(4.) Not applicable in following case:

The provisions of this section shall not apply to a transaction on which—

(a) tax is deductible under any of the provisions of this Act; and

(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies (TCS on sale of Goods).

Some important transaction and 194Q applicability:

(a) 194Q is applicable to purchase of all goods whether on capital or on revenue account.

(b) In case of Import there is no need to deduct TDS under this section. Since the payment is to be made to resident seller then 194Q applies.

(c) In case of Branch Transfer the existence of two distinct parties as ‘seller’ and ‘buyer’ is a pre-requisite to construe a transaction as a purchase. Hence in case of branch transfer the person are same. Hence no liability to deduct TDS under this section.

(d) 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.

(e) Tax so deducted shall be deposited with government by 7th day of subsequent month.

About the Author:

The Author’s name is CA Vinay Pungaliya. The author is partner at Bothra Pungaliya & Associates, Jodhpur.

Note: Information published in the Update is taken from publicly available sources/government notification, public documents and is believed to be accurate This is solely for educational purpose. Since it is new section and there are chances of many interpretational view. Hence suggestion and feedback are welcomed.

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