In the Finance Act of 2021, a new Section 194Q, TDS on Purchase of Goods, was added. This section became operative on July 1st, 2021. It applies to the buyer who is in charge of paying the resident seller any amount for the purchase of any products when the value of those purchases, or the sum of those purchases, exceeds Rs 50 lakh in any prior year.
Section 194Q of Income Tax Act: Background
The Central Board of Direct Taxes has introduced Section 194Q, which entered into force on July 1st, 2021. It primarily applies to buyers who spent more than Rs. 50 lakh on goods from Indian sellers in the previous fiscal year. TDS is applicable for purchases of goods at a rate of 0.1%. The government amended Section 194Q of the Income Tax Act of 1961 in the Finance Act of 2021. The government hopes to establish a record of high-value product sales and acquisitions by passing this law.
See also: Section 90 of Income Tax Act: Relief against double taxation
Section 194Q of Income Tax Act: Features
You can get a brief idea of 194Q of the Income Tax Act in this section.
Does 194Q apply to the financial year 2022–23?
TDS on purchased goods in 2022-23 is 0.10 percent on a threshold of Rs 50,000.
Who is subject to section 194Q?
A buyer is responsible for paying a sum to the resident seller for purchasing goods with a value/aggregate of a value exceeding Rs 50 lakh. A buyer whose turnover, gross receipts, or sales in the immediately prior fiscal year are more than Rs 10 crore is subject to this law.
What is the rate of TDS according to 194Q?
When determining the turnover value, subtract TDS from the value inclusive of GST rather than being added to the GST amount. The buyer is required to deduct 0.1% of the value over Rs 50 lakh as TDS. If the vendor doesn’t provide the PAN, the TDS rate will be 5%.
What formula is used to determine the taxation point under section 194Q of the Income Tax Act?
When the buyer’s account is charged with an amount more significant than Rs 50 lakh, Section 194 Q of the Income Tax Act would be applied. On the amount that exceeds the threshold, TDS is deductible. For instance, suppose the buyer paid Rs. 85 lakh for the seller’s items. The buyer will pay a TDS of Rs. 35 lakh in this instance. It makes up 0.1% of the total.
What formula is used to determine the purchase return under section 194Q of the Income Tax Act?
Tax deductions for purchase returns occur when the money is credited to the buyer’s account. The money from the buyer’s account (the seller will reimburse TDS on the purchase of the items if any purchase returns occur. Another possibility is that the seller can modify the tax deduction for the subsequent purchase. The seller cannot make tax adjustments if the goods are exchanged or replaced.
When is TDS deductible as per 194Q of the Income Tax Act?
The buyer shall deduct TDS at the time of the purchase of the products or just after the advance payment.
know about: section 194o of income tax act
194Q of Income Tax Act: Limitations
TDS is only applied to purchases of products when the aggregate cost of those transactions exceeds Rs 50 lakh in a given year. On purchases over Rs 50 lakh TDS is taken into account. However, if your transaction limit exceeds Rs 50 lakh before July 1, 2021, you must start TDS on July 1, 2021 because the transaction limitations will be applicable every year beginning April 1, 2021.
194Q of Income Tax Act: Expectations
If TDS is required to be withheld from a transaction of purchase under any other provision of the ITA, Section 194Q would not be applicable in those circumstances. For instance, if a purchase transaction falls within both Section 194O and Section 194Q, TDS would then be applied in accordance with Section 194O, which deals with TDS on e-commerce transactions.
However, Section 206C(1H), which allows a seller to collect tax (TCS) for the amount received in consideration for the sale of goods if it is larger than Rs 50 lakh in any prior year, is an exception.
194Q of the Income Tax Act: Amendments
Any money credited to a “Suspense account” or another account that is a part of the books of accounts of a person who becomes obliged to deliver the payment is subject to the TDS deduction under Section 194(Q) of the Income Tax Act.
Section 206C(1H) and Section 194Q allow deductions for all those transactions. In such cases, the assumption is subject to Section 194Q liability.
Section 194(Q) provisions do not apply to purchases if the vendor is a non-resident.
The disallowance of expenses up to 30% of the transaction value is the buyer’s responsibility if they fail to follow the rules for tax deductions under the change to Section 194(Q).
Difference between section 194Q and section 206C of the Income Tax Act
| Distinction | Section 194Q TDS on the purchase of goods | Section 206C of the TCS on Sale of Goods |
| Incharge | The Buyer | The Seller |
| Turnover Limitation of Deductor / Collector | The buyer’s combined sales, gross receipts, or turnover must have exceeded Rs. 10 crore in the fiscal year prior to the fiscal year in which the products were purchased. | The company’s total sales, gross receipts, or turnover for the fiscal year prior to the fiscal year in which the items were sold must exceed Rs. 10 crore. |
| Threshold limit in Sales/ Purchase | More than Rs. 50 Lakh | More than Rs. 50.00 Lakh |
| Collection/ deduction time | Time of payment or credit | During receipt time |
| Preference | If the transaction can be referred to both provisions, the purchaser would first be required to deduct tax. | If the tax has not been deducted, the seller will be responsible for collecting it. |
FAQs
What would happen if a purchase is returned?
Subtract the TDS at the time of payment or credit, whichever occurs first. The tax is already subtracted in the case of a purchase return. Thus you can adjust it against the purchase from the same supplier.
What is the current rule of section 194Q?
A citizen who receives any payment for the acquisition of goods must pay TDS, according to section 194Q. TDS is controlled at a meagre 0.1% rate.
What if TDS is not taken into account by 194Q?
The buyer shall be subject to 40A (IA) attraction if TDS from the acquisition of goods made under section 194Q is non-deductible. According to section 40A (IA), expenditures for 30% of purchase transactions on which TDS is non-deductible shall be prohibited.
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