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Under this blog we are going to understand a new section inserted by government to cover the transactions of purchase of goods under the purview of TDS provisions. This article covers the briefing of Section 194Q, its applicability, transactions covered under, rates and important due dates, other important points and relative practical examples. The government inserted Section 194Q to the Income Tax Act, 1961 in the Finance Act of 2021 and becomes applicable from July 1, 2021. The government’s motive in enacting this law is to have a check on and create a trail of high-value sales and purchases of goods. There are several other provisions of various sections under the Act that talk about the deduction of tax at source on various transactions; however, the deduction of tax on the sale of goods has been made applicable by introducing the Section 194Q into the Income Tax Act, 1961.
New Regulations
According to this section, a buyer conducting a transaction of purchase of goods shall deduct the TDS of the seller with whom the transaction of purchase of goods has been conducted, if the products purchased by the buyer from that seller exceeds an annual value of Rs.50,00,000/-. Let’s go through an example to understand this, suppose if you buy goods from ‘X’ and your annual purchases from ‘X’ is more than Rs.50,00,000/-, then you must deduct TDS on purchases above the amount of Rs.50,00,000/- limit. Suppose if you have bought goods amounting Rs. 60,00,000/-, the TDS should be deducted on the amount Rs. 10,00,000/- i.e., (Rs. 60,00,000- Rs. 50,00,000) considering the threshold limit of Rs. 50,00,000/-
Who is obligated to deduct TDS?
Any person who buys goods from any resident seller (deductee) and the value of those goods is more than the threshold of Rs.50,00,000/-. However, the following persons are not obliged to deduct TDS:
- New business —This section does not apply to the year the business is formed or incorporated.
- Turnover limit – This section will not apply to person who had a gross receipts/ turnover amounting less than Rs. 10 crores in the financial year immediately preceding the year in which goods are purchased.
- Non-resident — Provisions for this section do not apply to non-resident buyers. However, if the purchaser has a Permanent Establishment (PE) in India, this section may apply.
What kind of transactions would not be covered under this section?
- Tax is deductible under any of the provisions of this act.
- Tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.
- Purchase deals amounting less than Rs 50 Lacs.
- Securities and commodity transactions that are conducted via recognised stock exchanges and clearing organisations.
- Imported goods :- It is evident from the provision that a buyer is only liable to deduct TDS on sum payable to resident sellers only. Therefore, any goods purchased from the seller located outside India shall remain out of the provisions of this section.
Due dates for depositing tax liability:
TDS to be deducted earlier of the amount credited or paid to the seller. Under section 194Q, TDS shall be deposited by dates as follows:
- For period April- February :- 7th of the subsequent month
- For month of March :- 30th April
Rate of TDS
TDS is to be calculated at a rate of 0.1% on the amount exceeding the amount of Rs 50 lakh in a financial year from a seller from whom the buyer has purchased goods amounting more than Rs 50 lakh. However, in case the seller is not holding a valid PAN, the rate of tax deduction shall be 5% instead of 0.1%.
Steps for calculation of TDS
- Purchase above Rs 50 lakhs in a financial year from a seller
- TDS to be deducted after deducting the threshold limit of Rs 50 lakh from the total value of
purchase. - The threshold limit is Rs 50 lakh per seller, which means a seller-wise deduction in every financial
year.
To conclude the understanding of Section 194Q, let us consider a practical example to understand how the TDS under this section shall be calculated:- Suppose, if a buyer has purchased goods amounting of Rs 80 lakh from a seller, then firstly he has to deduct Rs 50 lakh from it as an initial deduction provided under Section 194Q and then calculate the TDS on the remaining amount of Rs 30 lakh at 0.1%. So, the TDS to be deducted in this case would be Rs 3,000.
TDS= (80,00,000 – 50,00,000)*0.1%= Rs 3,000
With the reading of this blog, we got briefed about the provisions of Section 194Q. We understood the nature of transactions covered under this section, on whom the applicability of this section arises, how the value of transactions shall be driven and the calculation of TDS shall be made, and when the TDS deducted should be deposited.
Written by – Arun Kumar
At MAS, we assist our clients with various income tax compliances, including income tax assessments, ITR filings, tax advisory, TDS matters other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about Section 194Q:- TDS on the purchase of goods , kindly contact us.
