Section 194Q TDS of the Income Tax Act: Applicability, TDS Rate, Due Date

The Central Board of Direct Taxes (CBDT) introduced Section 194Q of the Income Tax Act, which is related to TDS (Tax Deduction at Source), specifically on purchasing goods. A buyer will deduct a certain TDS amount at a rate of 0.1% on the purchase value exceeding ₹50 lakh from a resident seller in India, provided the seller furnishes their PAN. It helps the government to expand the tax base, enhance compliance, and encourage transparency in financial transactions. This article provides you with detailed information regarding Section 194Q TDS, applicability, TDS rate, and more. IndiaFilings streamlines TDS filing under Section 194Q with expert assistance!! [shortcode_35]

What is Section 194Q TDS?

Section 194Q of the Income Tax Act, introduced in 2021, is a provision for Tax Deducted at Source (TDS) applicable to specific high-value goods purchases. It targets buyers with a certain turnover threshold, requiring them to withhold a portion of the payment as TDS. This mechanism aims to improve tax collection and transparency in financial dealings. Failure to comply with Section 194Q can lead to penalties and disallowance of expenditure.

Applicability of TDS deduction under Section 194Q

Here’s the information regarding the applicability of Section 194Q TDS:

Buyer: The provision applies to a buyer making payments for the purchase of goods to a resident seller (seller based in India). It is not applicable to imported goods.
Purchase Value: The total value or cumulative value of goods purchased from the same seller in a financial year exceeds ₹50 lakhs.
Buyer's Turnover: The buyer's total sales, gross receipts, or turnover from their business in the previous financial year must be more than ₹10 crore.

Who deducts under Section 194Q?

Under Section 194Q, the buyer is responsible for deducting Tax Deducted at Source (TDS) on purchases of goods. The buyer should deduct the appropriate TDS amount as per the Section 94Q conditions and deposit it with the government by the 7th of the following month.

Time of TDS deduction under Section 194Q?

The time of TDS deduction under Section 194Q of the Income Tax Act is earlier than:

Crediting the amount to the supplier's account: If you electronically transfer the payment to the seller's bank account, the TDS needs to be deducted at the time you credit their account. This ensures the tax is withheld before the seller can access the funds.
Making the payment to the supplier (cash, cheque, draft, or any other mode): If you make the payment through a physical mode like cash, cheque, or demand draft, the TDS deduction should happen at the time of making the payment. This way, the tax is withheld at the point of disbursement.

Also read: A Guide for TDS return filing in India

What is Section 194Q TDS Rate?

The rate of TDS on purchase of goods under Section 194Q is set at "0.1%". This applies to the portion of the purchase exceeding Rs. 50 lakhs in a financial year.

What if the PAN is not furnished to the Buyer?

If the seller fails to furnish their Permanent Account Number (PAN) to the buyer, the TDS rate under Section 194Q significantly increases to 5%. It is to be noted that without PAN information, the tax rate will be 20% in other cases, while in Section 194Q, it is 5%.

How is the TDS Calculated under Section 194Q?

To calculate TDS under Section 194Q, first determine the total value of goods purchased from a particular seller in the financial year. If this total purchase value exceeds ₹50 lakhs, you need to deduct ₹50 lakhs from that value. This will give you the amount on which TDS needs to be deducted. Finally, multiply the amount obtained by the applicable TDS rate (0.1%). As mentioned, If the seller does not furnish the PAN, it is multiplied by 5%, which gives the TDS amount that needs to be deposited to the government. Note: For calculating TDS under Section 194Q, the entire purchase value, including GST, is considered.

TDS Deposit - Due Date

The calculated TDS amount will be deposited on the 7th of the month of the following month when the TDS is deducted. For example, if the TDS is deducted during February, the amount should be deposited on March 7. However, if the TDS deduction month is March, the amount can be deposited on April 30 since March is the end of the financial year.

Form 26Q - Due Date to File TDS Return

TDS return filing date depends on the quarter ending of the month in which TDS was deducted. The following quarter ending month and the respective due date for filing TDS returns (Form 26Q),

Quarter Ending	Due Date for TDS Return Filing
June 30	July 15
September 30	October 15
December 31	January 15
March 31	May 15 (current quarter)

Exemption from TDS deduction under Section 194Q

There are several situations where Tax Deducted at Source (TDS) under Section 194Q of the Income Tax Act is not applicable. Here are the details about the exemptions:

Threshold Limit: If the total value of goods purchased from a single seller in a financial year is less than ₹50 lakhs, you are exempt from deducting TDS under Section 194Q.
Turnover Threshold for Buyer: This section applies only to buyers whose total sales, gross receipts or turnover from their business exceeded ₹10 Crore in the previous financial year. You are exempt from deducting TDS under Section 194Q if your turnover falls below this threshold.
Conflicting TDS Provisions: If the purchase transaction falls under any other provision of the Income Tax Act for TDS deduction, such as Section 194O for e-commerce transactions, then that specific section's TDS provision applies instead of Section 194Q. You don't need to deduct TDS under both sections.
TCS Applicability: If the purchase of goods is covered under Section 206C (Tax Collected at Source) of the Income Tax Act (except for subsection 1H), then the seller is responsible for collecting tax, and you are not required to deduct TDS under Section 194Q.

Conclusion

Understanding Section 194Q TDS is crucial for businesses exceeding a certain purchase threshold. This article has covered the key aspects, including applicability, rate, due dates, and exemptions. By complying with Section 194Q, businesses contribute to a broader tax base and promote transparency in financial transactions. Consulting an IndiaFilings tax professional is recommended for specific situations to ensure proper adherence to the regulations. IndiaFilings experts help buyers to calculate TDS & file Form 26Q on time! [shortcode_35]