Applicability of Tax Deducted at Source (TDS) u/s 194Q on Purchase of Goods- In the Budget 2021-22, a new section 194Q introduced which will be effected from 1st July 2021.
This Article explains What is section 194Q, Time of Deduction of TDS under Section 194Q, Exception to TDS Deduction under Section 194Q, TDS Rate under Section 194Q of Income Tax Act, 1961, Non-compliance of section 194Q, How to ensure compliance of section 194Q, Pros and Cons of this new section 194Q and Applicability of section 194Q with Examples:
Page Contents
- What is section 194Q
- Time of Deduction of TDS under Section 194Q
- Exception to TDS Deduction under Section 194Q:
- TDS Rate under Section 194Q of Income Tax Act, 1961
- Non-compliance of section 194Q
- How to ensure compliance of section 194Q:
- Pros and Cons of this new section 194Q
- Applicability of section 194Q with Examples:
What is section 194Q
A new section 194Q introduced in Budget 2021-22 which is related to payment of certain sum for purchase of goods. As per this section, 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 Rs. 50 lakhs(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 percent of such sum exceeding fifty lakhs rupees as income-tax.
Time of Deduction of TDS under Section 194Q
(i) At the time of credit of such sum to the account of the seller; or
(ii) At the time of payment thereof by any mode
Whichever is earlier.
“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
Where any sum is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person (Buyer) 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 (Seller) and the provisions of this section shall apply accordingly.
Exception to TDS Deduction under Section 194Q:
The provisions of this section shall not apply to a transaction on which:
(a) tax is deductible under any of the provisions of this Act; and
(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.
TDS Rate under Section 194Q of Income Tax Act, 1961
i. 0.1% on sum exceeding Rs. 50 lakhs in any previous year
ii. 5% in case PAN number of Seller is not available (section 206AA).
It implies that if on a transaction a TDS or tax collection at source (TCS) is required to be deducted under any other provision, then it would not be subjected to TDS under this section. However, there is one exception to this general rule is that if on a transaction TCS is required under sub-section (1H) of section 206C as well as TDS under this section, then on that transaction only TDS u/s194Q shall be deducted.
Non-compliance of section 194Q
As per section 40a(ia) of Income Tax Act 1961, dis-allowance to the extent of 30% of the value of transaction. It means that if the buyer fails to deduct and deposit TDS as applicable then dis-allowance shall be restricted to 30% of the amount of expenditure on which TDS is not deducted and deposited.
How to ensure compliance of section 194Q:
In any business, purchase is an ongoing process and it is difficult to keep tab to identify as and when purchase from any vendor is exceeded Rs. 50 lakhs especially in a big organisation. Hence, automisation is the only solution for compliance of section 194Q. Hence, following steps are required to automisation:
i. On the basis of previous year, identify the vendors from whom purchases for more than Rs. 50 lakhs have been made in previous year and arrange alteration in the master of these vendor with activation of TDS deduction option in your accounting software.
ii. Arrange changes in your accounting software so that software can automatically identify and deduct TDS or provide you alert to deduct TDS as and when purchase of any vendor exceed from Rs. 50 lakhs during the current accounting year.
Pros and Cons of this new section 194Q
Pros:
Though the rate of tax is 0.1% but Government will get income tax in advance every month otherwise this portion of tax will be available to Government on 15th June, 15th September, 15th December and 15th March (at the time of payment of advance tax installments).
Cons:
Another compliance burden to staff of organization/professionals without increase of time limit for deposit and filing of TDS return. This will also increase the cost of organization.
Applicability of section 194Q with Examples:
Seller’s Turover : Rs. 9 Crores
Buyer’s Turover : Rs. 15 Crores
Receipt or Payment for sale or purchase of Goods in previous year : Rs. 55 lakhs
Taxability:
Buyer’s Turnover is more than Rs. 10 Crores
Taxable amount : Rs. 5 lakhs ( Rs. 55 lakhs-Rs.50 lakhs)
TDS u/s194Q : 0.1% on Rs. 5* lakhs
TCS u/s 206C(1H): not applicable as Seller’s turnover is less than 10 Crores.
Seller’s Turover : Rs. 15 Crores
Buyer’s Turover : Rs. 9 Crores
Receipt or Payment for sale or purchase of Goods in previous year : Rs. 55 lakhs
Taxability:
Buyer’s Turnover is less than Rs. 10 Crores
Seller’s Turover is more than Rs. 10 Crores
Taxable amount : Rs. 5 lakhs ( Rs. 55 lakhs-Rs.50 lakhs)
TDS u/s194Q : Not applicable
TCS u/s 206C(1H): 0.1% on Rs. 5 lakhs**.
Seller’s Turover : Rs. 15 Crores
Buyer’s Turover : Rs. 15 Crores
Receipt or Payment for sale or purchase of Goods in previous year : Rs. 55 lakhs
Taxability:
Buyer’s Turnover is more than Rs. 10 Crores
Seller’s Turover is more than Rs. 10 Crores
Taxable amount : Rs. 5 lakhs ( Rs. 55 lakhs-Rs.50 lakhs)
TDS u/s194Q : 0.1% on Rs. 5 lakhs*
TCS u/s 206C(1H): Not applicable (see exception).
Note:
*in case seller’s PAN number is not available, then the rate of TDS shall be 5%
**in case buyer’s PAN number is not available, then the rate of TDS shall be 1%
Author Bio
In Purchase bill,
purchase of Goods value and
Transportation Value included in Purchase bill(Separately mentioned).
for such bill we are deducting TDS 0.1% on Goods Value and 1% or 2% on Transportation.
My calculation is correct or Not. if Not then pls surject the correct answer.
Tax was not deducted under section 194Q (TDS on Purchase Goods) in July 2021, now TDS can be deducted. please guide us
Whether 194Q is applicable on Debit Note of Interest portion of Letter of Credit???
Dear sit
As we are in petrol pump business as our purchases between april to june is 3 crores and in july 1crore as and our purchase invoice includes vat also .so pls confirm me whether we need deduct tds including Taxes or excluding taxes and we need to deduct tax on 1cr or 50 lacs .pls can any one give suggestion about it
We have released payament to a particular vendor after 1st July’21 for Rs.55.00 Lacs agt. materials already received upto 31st Mar.’21.
Kindly advise the said transaction will be consider Tds U/s 194Q.
Rgds
i am buyer can i have a TAN number for dedect TDS under section 194q ?
Is this section applicable when we are already deducting TDS under other sections i.e., u/s 194C
can you provide challan number and tax code
In which nature of payment in challan the TDS 194Q will be depositd
SIR ,
PLEASE PROVIDE US 194Q PAYMENT CODES
1 DEDUCTEES CODE
2 TAX PAYMENT CODE
3 TDS PAYABLE BY TAXPAYER
my firm turnover is less than 9 Cores PA. and purchases from one particular supplier less than 50lakhs P.A. here no tax applicable. Please clarify me
Regards
T.srinivasa Rao
Dear Sir,
if my firm turnover is 5cr but we have purchased goods from a seller of rs 50 lacs and above.
194Q is applicable on us or not.
not applicable if your turnover is less than 10 cr
TDS on 194Q at the time of payment or credit whichever is earlier. “Credit” means entry passed for credit invoice or payment received otherwise than by way of cash/transfer/cheque
if the purchase are made by any civic Body such as Municipal corporation then which form are to be filled and what are the exemptions
A new firm started 1 year back and filed only one IT return, what will TDS rate u/s 194Q?
if the due amount receivable from a customer ( both buyer and seller turnover more than 10 crores ans sale value more than 50 lakhs) prior to 1st July 2021 recived after 1-7-21 whether tcs stlll applicable after 1-7-21
TDS to be calculated on 1) value of good or 2) value of good + gst
Thankyou sir..
ON THE VALUE OF GOODS ONLY EXCLUDING TAXES
FOR TDS DEDUCTION TRANSACTION VALUE CONSIDER 50,00,000/- FROM 1ST JUL OR FROM 1ST APRIL.
nice elaboration
Hello Sir.
I read your article & it’s very nice.
But I have a doubt in the non-compliance part of your article in which non-compliance will lead to activation of sec 40(a)(ia) of the Income Tax Act.
But the said section 40(a)(ia); is applicable on fees, brokerage, rent, work, professional services, etc.
So, how this section 40(a)(ia) is applicable in the case of non-compliance of section 194Q. As sec 194Q is for goods that are not covered in sec 40(a)(ia).
Regarding TDS u/s 194Q.
Q No-1:- Kindly clarify me on which amount tds to be deducted?
Q No-2 : Wheather TDS is deducted on purchase price value or payment consideration , after deducting the standard limit of 50 Lac.
I want to know that my Total turnover for the F.Y 2020-21 Rs 9.58 crore without GST and 11.30 crore with GST then what is my actual turnover on which these rule applicable?
Turn over includes GST i.e. total Invoice value.
BrijpalJi,
In your case turnover will be 9.58 only and not 11.30 as turnover doesn’t include GST being liability for company (Balance sheet Item).
Good
SIR, IN CASE ONE BUYER BUYING GOODS AND SELLING AGAINST THE SAME CREDIT , HOW THE TDS WILL BE TREATED
Section 206C(1H) reads as under: –
Section 206 C (1H) Every person, being a seller, who receives any amount as consideration for sale of
any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year,
other than the goods being exported out of India or goods covered in sub-section (1) or sub-section
(1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum
equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax:
Provided that if the buyer has not provided the Permanent Account Number or the Aadhar number
to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for
the words “five per cent”, the words “one per cent” had been substituted:
Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to
deduct tax at source under any other provision of this Act on the goods purchased by him from the
seller and has deducted such amount.
Exclusion Provided under Sec 206C(1H)
Dear Sir
if our customer ternover not exceed 10 core and purchase 55lac than
Section 194Q applicable w e f 01-07-2021. My question is that if purchases exceeded Rs.50 Lakhs in the month of April itself, shall we deduct tax from the purchase of may and june totaly or from the transactions from on and after 1st july ?
You will deduct TDS on the transaction from 1st July 2021 as section 194Q will apply from 1st July only.
whether TDS 194Q is to be deducted on amount incl. GST or Excl. GST ?
in case of TCS u/s 206C (1H) TCS needs to be collected on consideration received i.e. including GST amount.
boss, mera interpretation to ye kah raha ki ek hi transaction per dono section apply honge, kyonki sub section 5 ka clause b kah raha hai ki tax is collectible under the provisions of section 206C “other than a transaction to which sub-section (1H) of section 206C applies”, matlab 1H ko exception nahi rakha hai, ek or logic hai mera ki seller jo tax collect karega uska credit buyer ko mill jayega or jo buyer tax katega uska credit seller ko mill jaega, loss to dono ko hi nahi ho raha,
I also agree with your view. TDS and TCS both will be applicable if the turnover of both buyer and seller exceed Rs. 10 Crores. Thanks.
No. Both TDS and TCS will not be applicable on 1 transaction.
Dear Mr. Rathi
I feel there is a mistake in your elaboration. I feel it is quite clearly mentioned that exemption from deducting TDS u/s 194Q is given only when TCS u/s 206C is collected on the same transaction , except where the TCS u/s 206C(1H) is collected. It means that both section 194Q and section 206C(1H) can be applicable simultaneously
Dear Members
Please ignore my comments. I have made mistake.
Mr. Rathi That’s too good actually you have elaborated and explained in very simple language. Sir You are genius..
The provision stated and the example mentioned are contracting in nature.
Its very confusing………..
Very good article.
CA Pawan Rathi has in depth knowledge of income tax, i know him very well since 2007 onward, a great person with excellent knowledge, keen to do more and more , help others to learn more and more, i would like to congratulate him for this article, explained very well