All about newly inserted Section 194Q

TDS on Purchase of Goods under Section 194Q

The Union Budget of 2021-2022 was presented by our Finance Minister Nirmala Sitharaman on February 1, 2021. This budget is one of its own kind as this budget is the first budget of this decade and is also the first ever digital budget. Placing reliance on the Atma Nirbhar Bharat, the Finance Minister announced various proposals in Income Tax and GST laws with TDS on purchase of goods.

Apart from this, the budget through Finance Bill has proposed to amend or add more sections in the Income Tax Act. One of such sections is the newly inserted Section 194Q.

TDS on Purchase under Section 194Q

This newly inserted Section 194Q deals with TDS on purchase of goods of value or aggregate value exceeding ₹50 lacs in any previous year and this provision shall come into effect from July 1, 2021.

Section 194Q reads as follows:
Section 194Q – Deduction of tax at source on payment of certain sum for purchase of goods
(1) Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent. of such sum exceeding fifty lakh rupees as income-tax.

Explanation.––For the purposes of this sub-section, “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, subject to such conditions as may be specified therein.

(2) Where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

(3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.

Applicability of tDS on Pruchase under Section 194Q

This section applies to
– Buyer whose gross sales/receipts/turnover in the preceding Financial Year exceeds Rs. 10 crore, and
– Aggregate amount of purchases from such particular buyer in the financial year exceeds Rs. 50 lacs.

The term buyer under Section 194Q does not include any person as may be specified by Central Government by notification in the Official Gazette.

Also Read: Which Section Is Applicable – Section 194Q Or Section 206C(1H)?

Any sum credited to “suspense account” or by any other name in the books of account of the person liable to pay such sum (read as buyer), is covered and such credit shall be deemed to be the credit to the account of the payee and hence the provision would apply.

Inapplicability of Section 194Q

This provision shall be applicable where
(i) tax is deductible at source under any other provision of this Act; and
(ii) tax is collectible under the provisions of section 206C other than a transaction to which section 206C(1H) applies. 

In other words, the seller covered by section 206C(1H) would collect 0.1% (w.e.f. 01.04.2021) and the buyer would deduct 0.1% w.e.f. 01.07.2021.

The provisions of Section 194Q have been clarified through the memorandum of the Finance Bill, 2021 and it states that  if on a transaction TCS is required under section 206C(1H) as well as TDS under section 194Q, then in respect of that transaction only TDS under section 194Q shall only be carried out.

Also Read: Rate Chart Of TDS For FY 2021-22 AY 2022-23

Rates of TDS

When the person entitled to receive any sum or income on which tax is deductible under Chapter XVII-B does not furnish Permanent Account Number to the person responsible for deducting tax at source, the person making payment must deduct tax at source at the higher of the following rates viz.
(i) rate as specified in the relevant provision of this Act; or
(ii) at the rate or rates in force; or
(iii) at the rate of 20%.

Therefore, In case Seller provided PAN card details, TDS rate will be 0.1% otherwise it will deduct @5 % as per Section 206.

When is the TDS to be deducted?

TDS is to be deducted on earlier of the following:
– Payment date
– Credit of such sum to the account of seller

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3 thoughts on “TDS on Purchase of Goods under Section 194Q”

  1. Pingback: Restriction on Cash Transactions under the Income Tax Act | TaxHelpdesk

  2. Pingback: Rate Chart of TDS for FY 2021-22 AY 2022-23 | TaxHelpdesk

  3. Pingback: Which Section is applicable – Section 194Q or Section 206C(1H)? | TaxHelpdesk

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