The Indian Government introduced Section 194Q under the Income Tax Act through Clause 54 of the Finance Act 2021. This Act stipulates the provisions for deduction of tax at source on payment beyond a specific sum for purchasing goods.
Section 194Q came into effect from 1 July 2021. It aimed to establish the trail of purchase and sale of high-value goods.
Now let us take a deeper look at the particulars of TDS u/s 194Q.
Section 194Q is applicable for any buyer responsible for paying any sum to any resident seller for purchasing goods worth over Rs. 50 lakh in the previous financial year. At the time of credit to a seller or payment, he/she must deduct a sum of 0.1% of the transaction value as income tax.
For example, if a buyer’s total purchase is worth Rs. 1 crore, he/she has to deduct 0.1% TDS (tax deducted at source) for Rs. 50 lakh. This TDS u/s 194Q would amount to Rs. 5000 for this transaction. If the seller has not furnished their PAN or Aadhaar, the taxation rate is 5%.
The Central Board of Direct Taxes (CBDT) made further clarifications that the threshold limit of Rs. 50 lakh was applicable from 1 April 2021. It further clarified that its GST component must be separate at the time of credit.
Section 194Q(1) defines the buyer as a person whose total sales, gross receipts or turnover from his business exceeds Rs. 10 crores during the financial year preceding the transactions. Such persons are responsible for deducting tax at source and crediting it to the seller’s account at the time of sale or payment, whichever is earlier.
Section 194Q(2) states that the buyer can credit the sum referred to in Sub-section 1 to any of the seller’s accounts, including suspense accounts. They can make the payment in the books of a person liable to pay such credit. Moreover, buyers must deduct tax for a sum payable only to Indian resident sellers and not sellers outside the country.
Buyers and sellers involved in the business of e-auction services carried out on online portals are liable to deduct tax as per Section 194Q and 206C (1H).
TDS u/s 194Q is not applicable for e-auctioneers under the following conditions:
Tax is deductible u/s 194Q of the IT Act on the amount credited without including GST under the following conditions:
If the tax is deducted on a payment basis, the whole amount is taxable. In case of purchase returns, you may opt for adjustment of the deducted tax.
For goods not covered under GST, various other taxes such as VAT and excise duty are applicable. In case these taxes are present separately in the invoice, TDS u/s 194Q is not charged on such taxes. This is applicable when the deduction happens at the time of credit of such amount to the seller.
TDS u/s 194Q is applicable at 0.1% for an amount exceeding Rs. 50 lakh when it is paid/credited to a resident seller. Sellers whose transaction value exceeds this amount should furnish their PAN to avoid higher TDS rates of 5%.
Ans: Yes, the Finance Act 2021 introduced Section 194Q, which came into effect on 1 July 2021. So, if a buyer credits or pays any sum before this date, the TDS u/s 194Q is not applicable.
Ans: No, transactions of securities and commodities traded through recognised stock exchanges are not taxed u/s 194Q. Transactions taking place through recognised cleaning corporations located in the International Financial Service Centre are also not taxable u/s 194Q.
Ans: No, the Board has clarified that provisions u/s 194Q would not apply to sellers exempted from income tax under Income Tax Act, RBI Act or ADB Act. Section 194Q will also not be applicable for buyers exempted from income tax under the above Acts.
Ans: Yes, a buyer whose business has total sales, gross receipts or turnover of more than Rs. 10 crores in the preceding financial year is liable for taxation u/s 194Q. Section 194Q does not apply for turnover or gross receipts from non-business activities.
Ans: Yes, with the exception of government bodies not carrying out any business activity, all other bodies are liable to pay tax u/s 194Q. Public sector undertakings and corporations under the Central Government, State Governments or other local bodies have to comply with the provisions u/s 194Q.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
|Section 145A||Section 80P||Section 92CD|
|Section 281||Section 32(2)||Section 270A|
|Section 1399||Section 192A||Section 11|
|Section 35AD||Section 80C||Section 32|
|Section 206AA||Section 92E||Section 9|
|Section 153||Section 10(10D)||Section 194DA|
|Section 10AA||Section 80GG||Section 80TTB|
|Section 80JJAA||Section 1940||Section 23B|
|Section 206AB||Section 44AB||Section 87A|
|Section 115JB||Section 154||Section 194D|
|Section 194J(1)(ba)||Sectio 80U||Section 194K|
|Section 56-59||Section 80TTA||Section 234C|
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