Everything To Know About Section 194Q Of The Income Tax Act
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.
What Are the Provisions of Section 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.
Who is the Buyer as per Section 194Q?
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.
TDS Applicable for E-auction Services via Online Portal
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).
Also read: A Section 194N Of Income Tax Act: Provisions, Exceptions And More
TDS u/s 194Q is not applicable for e-auctioneers under the following conditions:
- The e-auctioneer is responsible only for price discovery which they report to the client.
- A client has every right to accept/reject this price and negotiate directly with a counterparty.
- Transactions take place outside the e-auctioneer’s electronic portal.
- Buyers and sellers directly carry out transactions outside the e-portal.
- An e-auctioneer is not responsible for facilitating the purchase/sale of goods.
Adjustment of TDS u/s 194Q for GST and Other State Levies
Adjustment for GST component
Tax is deductible u/s 194Q of the IT Act on the amount credited without including GST under the following conditions:
- The GST price breakdown is present in the invoice
- Tax is deducted when crediting the amount to the seller’s account
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.
Adjustment for other levies
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.
Exclusions of TDS u/s 194Q
- No TDS u/s 194Q is applicable for transactions where Section 206C is applicable with the exception of sub-section 1H.
- Any department of the Government that is not carrying out any business/commercial activity will not be considered as a ‘buyer’ u/s 194Q.
- If any department under the Central Government or State Governments are ‘sellers’, buyers do not need to deduct any taxes.
- Provisions of TDS u/s 194Q are not applicable for non-residents whose purchase of goods does not have any connection to a permanent establishment (PE) in India.
- No tax is collected from a buyer who furnishes a declaration stating that he/she has purchased the mentioned goods to generate power and not for trading purposes.
- Taxation u/s 194Q is not applicable for transactions where Section 206C is applicable.
- Section 194Q does not apply to e-commerce operators where taxes have been deducted u/s 194-O of the IT Act.
Also read: Section 194C Of The Income Tax Act: How Is TDS Calculated, Deduction & More
Final Word
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%.
Frequently Asked Questions
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.
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