Section 194Q: Deduction of tax at source on payment of certain sum for purchase of goods
Explanations and FAQ’s
1. From which date the provisions of Sec 1 94Q Applicable?
The provision of Sec 194Q notified in Finance Act, 2021 and applicable from 01st July 2021.
2. In which cases and who are liable to deduct TDS U/s Sec 194Q?
The following all the conditions need to satisfy for applicability of Sec 194Q:
i. There much be Purchase of Goods (any Goods)
ii. Purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees (>50 Lac) in any previous year
iii. Person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees (> 10 Crores) during the financial year immediately preceding the financial year.
3. Time of deduction of TDS U/s 194Q?
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.
credit of such sum to the account includes, whether called “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 of such income to the account of the payee.
4. Rate of Tax? 0.1% on sum exceeding 50 Lacs.
If the Party has not provided the PAN then, Rate of Tax is 5% as per Sec 206AA(1).
5. In which cases Sec 1 94Q is not applicable?
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 (Actual deduction is not required it is only tax is deductible) ; and
(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1 H) of section 206C
i.e if the tax collected U/s 206(1H) – Still the Provisions of Sec 194Q is applicable irrespective of tax collected, provided all the conditions satisfied U/S 194Q.
if the tax collected U/s 206C – then the Provisions of Sec 194Q is not applicable.
If the tax deductible U/s 194Q – then the provisions of Sec 206(1H) not applicable. (Sec 206(1 H) not applicable, 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).
(c) Not applicable in case of seller is Non Resident (i.e Seller must be resident and there is no restriction on buyer).
6. Calculation of threshold limit for the Financial Year 2021-22?
The limit of Rs. 50 lacs is for financial year. Even though the provisions of Sec 194Q is applicable from 01-07-2021, the limit of 50lacs has to be calculated from 01-04-2021 (beginning of Financial Year).
7. What are the Goods U/s 1 94Q?
The section 194Q is applicable only in case of Goods and does not apply in case of Service.
Goods is not defined in the Income Tax Act, 1961. However as per Sec 2(7) of the Sale of Goods Act, Goods is defined as “Every kind of movable property other than Actionable claims and money, and includes Stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under contract of sale”.
8. What are the consequences of not deducting or not depositing TDS?
As per sec 40(a)(ia), if TDS is not deducted or Deducted but not deposited then 30% of the amount on which TDS is to be deducted and deposited will be added to the Income of that person.
However on payment of such TDS in the subsequent year, the 30% of such amount added back in the previous is allowed as deduction in the year in which Tax deducted is paid.
9. Is Section 194Q applicable on exempt income under Income Tax Act, 1961?
If The income is totally exempt from levy of Income-tax under Income tax Act, 1961, it is outside the purview of Section 4 of Income tax Act which is charging provision of Income-tax. Hence, due to non applicability of Section 4 of Income-tax Act on the income which is exempt, none of the TDS provisions would also be applicable to the Income. On the basis of above, the provisions of Section 194 is not applicable on Exempt income (Ex: Agriculture Income which is exempted U/s 10(1) of Income Tax Act, 1961)
|S No||Turnover or Payment up to 30-06-2021 (in Lacs)||Turnover or Payment after 30-06-2021 (in Lacs)||Applicability of Sec 194Q|
|1||60||Nill||Not Applicable since there is no transactions happened after 01-07- 2021|
|2||60||20||Applicable on 20 Lacs. Even though up to 30-06-2021 turnover/ Payments exceeds 50 lacs, no TDS required to deducted on 10 Lacs (60- 50) since the provisions applicable from 01-07-2021|
|3||40||30||Applicable on 20 Lacs (70-50)|
|4||Nill||40||Not Applicable since the turnover / payments not exceeding 50Lacs|
|5||Nill||70||Applicable on 20 Lacs(70-50)|
All the cases previous year Turnover exceeding 10 Crores.