Guideline under Section 194Q of the Income Tax Act 1961

Guideline under Section 194Q of the Income Tax Act 1961

194Q which takes effect from 1^st July 2021.

It applies to the Buyer who is responsible for paying any sum to any resident seller for the purchase of any goods of the vale or aggregate of value exceeding fifty Lakh rupees in any previous year.

Time of Deduction (Earlier of )

1. At the time of credit of such sum to the account of the seller or

2. At the time of payment

Rate of TDS

1% of such sum exceeding Rs fifty lakh

Condition for Deduction

Buyer whose total sales / gross receipts or turnover from a business which is carried by him exceeds Ten Crores immediately preceding financial year.

Guidelines

• 194Q shall not apply in relation to the transaction in securities & commodities which are traded through a stock exchange or cleared or settled by the recognized clearing corporation
• 194Q shall not apply in relation to the transaction in electricity, renewable energy certification & energy saving certificates which are traded through power exchange.
• Section 194Q shall not apply on any sum credited or paid before 1^st July
• If any of the two events had happened before 1st July 2021, then such transaction is not subjected to TDS u/s 194Q.

Calculation of Threshold.

The threshold limit shall be computed from 1^st April 2021.

If a person being buyer has already credited or paid fifty lakh rupees or more before 1^st July 2021, then the provision of section 194Q shall be applicable and shall deduct TDS @.1% on any sum credited or paid whichever is earlier on or after 1^st July 2021.

GST Purchase Adjustment

TDS shall be deducted on the amount credited without including such GST if the seller is indicated such tax in his tax invoice separately.

However, if advance has been paid, then TDS shall be deducted on the whole amount as it is not possible to identify the payment with the GST component of the amount to be invoiced in the future.

TDS in case of Purchase Return;

In the case of purchase return, TDS on the said purchases has already been deducted & paid, then the following procedure will be adopted;

1. If money is refunded by the seller, then we may adjust said TDS against the next purchase.

2. If it is replaced by the goods of the same value then nothing shall be done as TDS on the said purchase has already been deducted.

Section 194Q shall not apply to Non-Resident buyers.

Section 194Q shall not apply to the purchase of goods from a person, being a seller who as a person is exempt from income tax. Similar provisions apply to sub-section (1H) of section 206C. The above clarification would not apply if only a part of the income of a person being a seller is exempt from income tax.

• TDS under section 194Q shall apply on advance payment made by the buyer to the seller.
• TDS shall not be applied in the year of incorporation.

NOTE:- To Calculate Turnover/ Gross Receipt/ Total Sales, The Buyer Is Required To Generate These Only From Business Activity. If It Generate From Non-Business Activity Then That Part Shall Not Be Part Of Computation For Turnover/ Gross Receipt/ Total Sales.

If The Transaction Is Both Within The Purview Of Section 194-O (In The Case Of E-Commerce Operator) As Well As Section 194Q Of The Act, Tax Is Required To Be Deducted Under Section 194-O Of The Act.

If The Transaction Is Both Within The Purview Of Section 194-Q As Well As Subsection (1H) OF Section 206C Of The Act, Tax Is Required To Be Deducted Under Section 194-Q Of The Act.

If The Transaction Is Both Within The Purview Of Section 194-O ( In The Case Of An E-Commerce Operator) As Well As Subsection (1H) Of Section 206C Of  The Act, Tax Is Required To Be Deducted Under Section 194-O Of The Act.