Section 194Q was inserted in the Income Tax Act, 1961 vide the Finance Act, 2021
Applicability: Any person, being a buyer who is responsible for paying any sum to any seller (being a resident) for purchase of any goods (including capital goods), where the value or aggregate of such values, exceeds ₹50 lakhs in any P.Y., shall deduct TDS.
Applicable w.e.f.: 1st July, 2021.
Rate of TDS: 0.1% (5% in case PAN is not furnished) of the purchase value exceeding ₹50 lakhs.
Explanation: The value on which TDS shall be charged is the sum left after deducting ₹50 lakhs from the total value.
[Total value (-) ₹50 lakhs= value on which TDS shall be charged]
Time of deduction: Earlier of the following:
Conditions for deduction:
The tax shall be deducted only when the following conditions are satisfied:
Buyer: For the purpose of this section, buyer means a person whose total sales, gross receipts or turnover from the business, exceeds ₹10 crores during the F.Y. immediately preceding the F.Y. in which goods are purchased. Further, the Central Government may, by notification in the Official Gazette, specify the list of persons who shall not be considered as buyers for this matter.
Note: As of now, there’s no such clarification in regards to the inclusion of GST in the total value of goods. Hence, for the purpose of computing the total turnover, the amount of GST shall be included.
Role of Buyer & Seller:
Buyer: To deduct TDS.
Supplier: Obtain a declaration from buyer in regards to timely deduction and payment of TDS.
Applicability on imports:
Since this section is applicable only when purchases are made from a resident seller, hence, no TDS shall be deducted in case of imports.
Due date of depositing TDS with the Govt.:
Due date of TDS return:
|Q1||April- June||31st July|
|Q2||July- September||31st October|
|Q3||October- December||31st January|
|Q4||January- March||31st May|
Exceptions: The provisions of this section shall not apply to transactions where:
Explanation: This implies that, if in case TDS or TCS is applicable on a transaction under some different section(s), then provisions of section 194Q shall not apply.
Further, in case both sections 194Q and 206C(1H) are applicable then in that case the provisions of section 194Q shall prevail.
Non- compliance: As per section 40a(ia) of Income Tax Act 1961, in case of non- deduction/ non- payment of TDS, amount to the extent of 30% of the value of transaction on which TDS was to be deducted shall be disallowed to the buyer.
1. Goods purchased: ₹55 lakhs
2. Value of goods on which TDS is chargeable u/s 194Q: excess of ₹50 lakhs i.e., ₹5 lakhs
3. TDS @ 0.1% on ₹5 lakhs: ₹500
4. TDS not deducted by the buyer
What will be amount of disallowance?
Answer: Amount of disallowance: 30% of ₹5 lakhs i.e., ₹1.5 lakhs.
SECTION 194Q V.S. SECTION 206C(1H)
In the existing section 206C of the Income Tax Act, 1961, a new sub- section (1H) was inserted vide the Finance Act, 2020 which provides that a seller having turnover of more than ₹10 Crores in the preceding F.Y. is required to collect from the buyer, TCS @ 0.1% of the consideration received, for sale of goods exceeding ₹50 lakhs. This provision was made effective from 1st October, 2020.
This had already created a lot of ambiguities due to the reasons that it was made applicable during the mid of the year. To top it up, the Govt. introduced Section 194Q, in the name of resolving the ambiguities as created by Section 206C(1H), which in essence doubled up the issues.
Which section will prevail in case of overlapping between section 194Q and 206C(1H)?
Ans. We have already noted in the above-mentioned points that, if both the sections are applicable in a particular case at the same time, then section 194Q shall prevail over section 206C(1H).
Difference between section 194Q & section 206C(1H):
|Purpose||Tax to be deducted||Tax to be collected|
|Applicable w.e.f.||1st July, 2021||1st October, 2020|
|Time of deduction/ collection||Payment or credit whichever is earlier||Receipt|
|Rates||0.1% (5% if PAN not available)||0.1% (1% if PAN not available)|
|Overriding effect||194Q prevails over 206C(1H)|
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