Section 194Q has been inserted in the Income Tax Act which talks about TDS being deducted on Purchase of Goods by the Buyer @ 0.1% of the sum exceeding Rs. 50 Lacs.

Readers will recall the section being similar to Section 206C(1H) which inserted the law of collecting TCS on Sale of Goods.

Applicability Conditions Rate
  • Applicable to Buyers whose total sales/ Gross receipts/ Turnover of the business is more than Rs. 10 crores (excluding GST) in the preceding financial year.
  • Only Goods are covered and not applicable on services.
  • Applicable from 1st of July,2021
  • Applicable on every Resident seller for every financial year.
  • Buyer who is responsible for paying sum to any resident seller for purchase of any goods for a value or aggregate of value exceeding Rs. 50 lakhs in the FY.
  • For FY 21-22, purchases made before 1st July 2021 not liable to deduction.
  • TDS shall be deducted on advance payment made also.
  • Threshold limit is 50 lakhs. For FY 21-22 purchases before 1st July 2021 shall be included to calculate the threshold limit.
0.1% of sum exceeding Rs. 50 Lacs.

 [Tax to be deducted @ 5% Ø if the seller does not provide PAN/Aadhar]

If any sum is credited to a ‘Suspense’ account, or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit to the account of the payee and the provisions of this section shall apply accordingly.

Non-Applicability of Section 194Q

  • Where TDS under any other section or TCS u/s 206C(except TCS under 206C(1H)) needs to be deducted, then TDS u/s 194Q will not be deducted .
  • Where Goods have been Purchased from a person not residing in India.

TDS u/s 194Q overrides TCS u/s 206C(1H), i.e. in case where both TDS under 194Q and TCS under section 206(1H) is applicable, then only TDS on Purchase of Goods u/s 194Q shall be deductible.

If Buyer fails to deduct TDS u/s 194Q; then 30% of such sum will be disallowable u/s. 40(a)(ia)

If Buyer fails to deduct TDS 194Q

Newly inserted Section 206AB and Section 206CCA of Income Tax Act w.e.f. 1st July,2021

The Tax is required to be deducted or collected at source (TDS/TCS) at rates higher than prescribed, if the transaction is incurred with the resident person who:

  • Has not file the IT return for two FYs immediately before the FY in which tax is required to be deducted and,
  • The Time Limit for filing such Return u/s 139(1) has expired and,
  • TDS or TCS amount deducted in each of the two FYs exceeds Rs 50000.

Not Applicable to following transactions:

  • Section 192 – Salary
  • Section 192A – Payment of accumulated balance due to an employee
  • Section 194B – Winnings from lottery or crossword puzzle
  • Section 194BB – Winning from a horse race
  • Section 194LBC – Income in respect of investment in securitisation trust
  • Section 194N – Payments of certain amount/amounts in cash
  • Non-resident who does not have a permanent establishment in India.

Rate of TDS or TCS: Higher of the following:

  • at twice the rate specified in the relevant provision of the act,
  • at twice the rate in force (not in case of TCS i.e u/s 206CCA)
  • 5%

Performa Declaration for Applicability of Section 206AB/206CCA

<On letter head of entity>

To

Company Name

Dear sir / Madam

We, <name of party> have registered / head office at < address> having PAN: < PAN>. We hereby make the following declarations in relation to Section 206AB under Income tax Act, 1961

1. We have filed our income tax returns for immediately last two preceding Financial Years for which due date to file return of Income has expired as per sub section (1) of section 139 of the Income Tax Act,1961 and details of which are as given under:

F. Year A.Y. Date of filing ITR Acknowledgement Number
2019-20 2020-21
2018-19 2019-20

2. The aggregate of tax deducted at source and tax collected at source in our case in Form 26AS is more / not more than INR 50,000 in each previous year.

3. Above confirmation is true and correct to the best of our knowledge and belief. We will indemnify Company for any loss or liability incurred by it on account of any misrepresentation made through this declaration.

For < name of party>

Authorized signatory
Name –
Date –

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12 Comments

  1. PRAVESH KHANNA says:

    Opening bal 01.07.21 creditor collect tcs on this amount but i will pay on this amount on july onward TDS applicable in this amount or not?

  2. JD Asirvadam says:

    If the threshold of 50 Lakhs was observed in the month of August then do we need to collect TDS as per sec 194Q on sales that happened from 1st July 2021

    1. Suraj says:

      No,Since the the applicablity of sec 194Q was achieved only in the month of August, The TDS u/s 194Q is to be applicable only post that.

  3. Sai says:

    Is this rules apply to an unemployed person? An unemployed person trying to buy a 14.99 lakhs car with his/her wife/husband’s income, who is filling income tax returns regularly.

    Please clarify, thank you.

  4. Mohamed Barkathullah says:

    In third scenario, i.e. Buyer 10 Crores, (where only TCS is applicable) it is given as ‘to be deducted by BUYER’.
    Actually it should be ‘to be deducted by SELLER’.
    (Refer image given in between for easy understanding)

    This is not just to point out error… It happens errors once in a while, But lot of people refer to ‘TaxGuru’ and proceed with high confidence on your reliability.
    That’s why I thought to make a note of it.
    Hope you correct it understanding my intention of this comment.

    It should not be forgotten to thank you for timely updates/articles to help us keep updated for our profession.

    Thank You.. TAX GURU

    Regards
    Md. Barkathullah

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