The concept of TDS was introduced with an aim to collect tax from the very source of income. Currently there are 36 provisions in the Income Tax Act which require TDS deductions from various payments. There is a recent insertion of section 194Q vide Finance Act 2021. With introduction of Section 194P and 194Q, there will be total 38 provisions in income tax dealing with the TDS deductions. In this article we will discuss about the provisions of section 194Q
The provisions of Section 194Q will be effective from 1 July 2021. Under this section buyer of goods is required to deduct tax at source. Provisions of this section are given below –
Any person (being a buyer) who is responsible for paying any sum to resident seller for purchase of any goods of the value (or aggregate of such value) exceeding INR 50 Lakh in a previous year, shall deduct tax under section 194Q. However, tax is not deductible for any payment or credit made before July 1, 2021.
At what time tax is deductible?
– At time of credit to the account of seller
– At time of payment thereof
Whichever is earlier.
Where, any sum is credited to any account, whether called “Suspense Account” or by any other name, in the books of account of the buyer, such credit shall be deemed to be the credit to the account of the payee and the aforesaid provisions shall apply accordingly.
Rate of TDS
Tax is deductible at the rate of 0.1% of payment/credits to the seller of such sum exceeding INR 50 Lakh. In case PAN number of seller is not available tax shall deducted at the rate of 5%.
Which Category of buyer needs to deduct TDS?
Those buyers (Resident/Non-Resident) whose total turnover from the business carried on by him exceed INR 10 Crore during the Financial year immediately preceding the financial year in which purchase of goods is carried out, will be required to comply with provisions of Section 194Q. However, It does not include a person, as the Central Government may, by notification, specify for this purpose, subject to such conditions as may be specified therein.
Example 1: Turnover of ABC Ltd for FY 20-21 is INR 15 Crore.
Identify whether the provisions of Section 194Q will be applicable on ABC Ltd w.e.f July 1, 2021.
Yes, as per section 194Q Buyer means any person whose turnover from the business carried on by him exceeds INR 10 crore during preceding financial year.
Meaning of Seller as per Section 194Q
Any person (who is seller of Goods) is “seller” for the purpose of this section. Tax is deductible under section 194Q only if seller is resident in India.
Exception to Section 194Q
Provisions of Section 194Q is not applicable on the transaction on which –
– Tax is deductible under any other provisions of the act, or
– TCS is collectible by the seller under the provisions of section 206C (except sub-section (1H) of Section 206C)
FY 20-21 Following is the turnover:
Buyer: ABC Ltd – INR 15 Crore
Seller: XYZ Ltd – INR 7 Crore
ABC Ltd purchase goods from XYZ Ltd as follows:
1st August 2021 – INR 30 Lakhs.
3rd September 2021 – INR 24 Lakhs
Calculate TDS to be deducted by ABC Ltd from payments made to XYZ ltd in respect of above transactions.
Calculation of Taxable Amount
Total Purchases from XYZ Ltd – INR 54 Lakhs (30+24)
Taxable Amount – INR 4 Lakh (54-50)
Tax shall be deducted at the rate of 0.1% on 4 Lakh in case pan is available (5% if PAN not available)