Section 194Q – Tax deduction on the purchase of goods


As part of the Finance Act of 2021, a new Section 194Q has been added that will take effect on July 1, 2021. Section 194Q requires the buyer to deduct TDS on the purchase of goods from a resident seller.


A brief overview of Section 194Q is provided in this article, as well as information on when TDS is deducted, how much TDS is deducted, and whether or not Section 194Q provides an exemption. Other important points and examples are also provided.


Requirements for TDS deduction on goods purchased under Section 194Q


Section 194Q of the Income Tax Act states that TDS is deductible if-

  • The buyer is responsible for paying a sum to the resident seller;

  • Payment of this kind is required for the purchase of goods worth more than INR 50 Lakhs.


Explanation of the term ‘buyer’-

'Buyer' is defined in Section 194Q as follows:

  • Anyone with sales, gross receipts, or turnover exceeding INR 10 Crores in the immediately preceding Financial Year in which the specified purchase of goods took place;

  • This excludes anyone who has been notified by the Central Government.

Under Section 194Q, when can I deduct my purchases of goods from my taxes?

  1. when the money is credited to the seller's account;

  2. At the time of the payment.

Section 194Q TDS deduction rate


For purchases over INR 50 lakhs, the buyer is required to deduct TDS at 0.1 percent of the purchase price.


However, if the seller's PAN is not available. When that happens, the buyer will be required to deduct tax at a rate of 5 percent.

Section 194Q's effective date


Provisions enacted under Section 194Q will go into effect on July 1, 2021


Section 194Q offers an exemption.


Other provisions of the Income Tax Act allow deduction of TDS on certain transactions, such as Section 206C(1H) transactions.


Points to consider in connection with Section 194Q


The following are some of the most important points about TDS deductibility on purchases of goods:

  • Any amount credited to a 'suspense account' or any other account in the books of the person liable to make payment of such income is also subject to TDS deduction under section 194Q.

  • Transactions, wherein, TDS is deductible under both the provisions i.e., section 206C(1H) and section 194Q. Under such cases, TDS would be deductible only under section 194Q.

  • In cases where the seller is a non-resident, section 194Q does not apply.

  • The buyer fails to comply with section 194Q's tax deduction provisions. Then, as per Section 40a(ia), expenditures up to 30 percent of the transaction's value would be disallowed.

  • Although it was not explicitly stated, the provisions of section 194Q apply to the purchase of both capital and revenue goods.

 

Examples of section 194Q –


Example 1 - Buying agent Mr. Ratan has an annual revenue of INR 50,00,00,000. Mr.