Section 194Q - TDS on Purchase of Goods Explained

The aim of this regulation is to improve tax collection efficiency and ensure transparency in financial transactions. Failure to comply with this section can result in penalties and the disallowance of associated expenses.

Scenarios Where Section 194Q is Applied

The scenarios where section 194Q is applied are:

1. When the total value of goods purchased from the same seller is more than Rs.50 lakh within a financial year.

1. It applies to buyers making payments made to resident sellers for goods, excluding imported goods.

1. When the buyer’s gross receipts, total sales, or business turnover from the previous financial year exceeds Rs.10 crore.

Example:

1. If you purchase goods worth Rs.90 lakh from a seller, subtract the Rs.50 lakh threshold.

1. TDS is then deducted from the remaining Rs.40 lakh at a rate of 0.1%.

1. The TDS amount in this case would be Rs.4,000.

Eligibility Criteria

Section 194Q applies to the below-mentioned buyers:

1. The gross receipt or turnover of the buyer in the previous financial year must be above Rs.10 crore.

1. The payment to the resident seller must be made by the buyer.
   1. Even when the purchase amount or turnover crosses the limits, no TDS will be deducted if the seller is a non-resident.
   2. The value of the goods that have been purchased must be more than Rs.50 lakh.
   3. Applies to both capital goods and revenue. 

When Should TDS be Deducted?

Deduction of TDS must be made when the seller is paid the amount or when the amount is credited to his/her account, whichever is earlier. Therefore, in case the amount has not been paid, TDS must be deducted when the goods are purchased. In case an advance payment has been made, TDS must be deduced immediately.

TDS Rate

1. TDS Rate: 0.1% is to be deducted at source when the amount of purchase is more than Rs.50 lakh in a financial year.

1. Threshold: The first Rs.50 lakh of purchases are exempt from TDS; tax is only deducted on the amount exceeding this limit.

1. Seller-wise Limit: The Rs.50 lakh threshold applies individually for each seller.

1. Reckoning Limit: The Rs.50 lakh limit should be considered separately for every seller within the financial year.

TDS Rate if PAN is not Provided

In case the seller does not provide the Permanent Account Number (PAN) to the purchaser, the TDS rate will be 5%. Apart from Section 194Q, the TDS rate for other sections will be 20% if PAN is not provided.

1. No PAN Furnished by Seller: If the seller fails to provide PAN details, TDS will be deducted at a rate of 5% instead of the usual 0.1%.

1. Default TDS Rate: The tax rate applicable in other cases is 20%, if PAN information is not available.

1. Section 194Q: In cases falling under Section 194Q, the applicable TDS rate is 5%.

Impact of GST

The GST impact on calculation of TDS is mentioned below:

1. Turnover for TDS calculation should exclude GST.

1. TDS at 0.1% is calculated only on the value of goods or services excluding GST.

TDS Deduction Time

The details about the period of TDS deduction are mentioned below:

1. TDS should be deducted either when the amount is credited to the seller's account or paid, whichever is earlier.

1. TDS should be deducted at the time of the purchase, if no advance payment has been made.

1. TDS should be deducted immediately, if an advance payment is already made.

TDS remittance and filing:

1. The deducted TDS amount must be remitted to the government.

1. A quarterly statement needs to be filed by the specified due dates.

Exceptions to TDS deduction under Section 194Q

The following are the details of exceptions under Section 194Q:

1. TDS deduction will be as per that specific section instead of Section 194Q, if the purchase transaction falls under a different section of the Income Tax Act, such as Section 194O for e-commerce transactions.

1. TDS under section 194Q will not be applicable if the threshold limit of total purchase value from a single seller in a financial year is less than Rs 50 lakh.

1. If the buyer’s turnover (Rs.10 crore) is less than the threshold limit, then TDS deduction under section 194Q will not be applicable.

1. TDS under Section 194Q will not be applicable if the goods purchased are covered under Section 206C (Tax Collected at Source), except for subsection 1H.

Due Date for Filing Form 26Q

The due date for filing Form 26Q for the different quarters in a financial year are mentioned below:

1. 30 June: 31 July
2. 30 September: 31 October
3. 31 December: 31 January
4. 31 March: 31 May

Declaration Format Under Section 194Q

Purpose: To inform the seller that the buyer is responsible for deducting TDS on purchases exceeding Rs.50 lakh in a financial year.

Key Components:

1. Header: Clearly state the document as a declaration under Section 194Q of the Income Tax Act, 1961.

1. Buyer’s Details:
   1. Name and PAN.
   2. Company name and PAN (if applicable).
   3. Designation (if applicable).

1. Turnover Declaration: State the total turnover for the previous financial year and confirm if it exceeds Rs.10 crore, making the buyer liable to deduct TDS under Section 194Q.

1. Indemnity Clause (Optional): Include a clause protecting the seller from any consequences arising due to incorrect information provided in the declaration.

1. Date and Signature: Sign and date the declaration to authenticate it.

Comparison Between Section 194Q vs Section 206C(1H)

The difference between Section 194Q and Section 206 (1H) are mentioned below:

Note: In case of overlapping applicability, TDS under Section 194Q takes precedence over TCS under Section 206C(1H).

Points to Remember for Section 194Q of the Income Tax Act

The significant points that should be remembered for section 194Q of the Income Tax Act:

1. Failure to comply with the TDS provisions under Section 194Q may result in disallowance of expenditure.

1. 30% disallowance of the transaction value if TDS is not deducted or paid.

1. Covers both revenue and capital goods purchases.

1. If the seller does not have PAN, TDS on purchase amount more than Rs.50 lakh will be 5% instead of 0.10%.

1. Not applicable to transactions with non-resident sellers and applies specifically to transactions involving resident sellers.