Section 194Q of the Income-tax Act, 1961 was established by the Finance Act, 2021. It deals with Tax Deducted at Source (TDS) on the purchase of products rather than the provision of services.
In the following situations, a buyer is covered by this section:
1. A buyer whose sales, gross receipts, or turnover exceeded Rs. 10 crore in the fiscal year that just ended.
2. The buyer is in charge of paying the resident seller a certain amount.
3. For the purchase of products with a value/aggregate value greater than Rs. 50 lakh, such payment is required.
When purchasing products worth more than Rs 50 lakh in the current fiscal year 2021–2022, a buyer whose turnover exceeded Rs 10 crore in that fiscal year is required to deduct TDS from their resident seller.
When a buyer purchases products from a seller for more than Rs 50 lakh, tax is due at source at the rate of 0.1% on any amount over Rs 50 lakh in a fiscal year.
Assume that a customer pays a seller Rs 20 lakh for products three times in total, for a total of Rs 60 lakh in transactions. He must now take Rs 50 lakh off the total cost of the products he bought. Only Rs 10 lakh must have TDS (0.1%) withheld from it.
The ITA’s Section 194Q will take effect on July 1, 2021. Thus, only purchases made after July 1, 2021 are subject to TDS deduction. However, beginning of April 1, 2021, consideration must be given to the Rs 50 lakh purchasing threshold.
A buyer who purchases goods from a seller for Rs 80 lakh is required by Section 194Q to deduct an initial deduction of Rs 50 lakh and then pay tax duty (TDS) at a rate of 0.1% on the remaining Rs 30 lakh. Thus, the TDS that would apply in this situation would be Rs 3,000.
When such money is given to the seller or credited to him, whichever comes first, is when the TDS is supposed to be subtracted.
Put another way, you must deduct this TDS at the time of the item’s purchase if you haven’t paid any advance money. On the other hand, you must deduct TDS right away if you have made an advance payment.
If a seller does not provide a buyer with a Permanent Account Number (PAN), the TDS will be withheld at the rate of 5% rather than 0.1%.
It is significant to remember that in other situations, the applicable tax rate is 20% in the absence of PAN information. The TDS rate that applies in Section 194Q is 5%.
On or before the seventh day of the month that follows the month when the TDS is deducted, the TDS must be deposited. The payment deadline is February 7th, for instance, if January is the deduction month.
In the event of March, on the other hand, the TDS may be deposited till April 30.
The deadlines for submitting TDS returns are July 31, October 31, January 31, and May 31, respectively, for a quarter that ends on June 30, September 30, December 31, and March 31.
If the TDS is required to be withheld from a purchase transaction under any other ITA regulation, Section 194Q would not apply. TDS would apply in accordance with Section 194O, which refers to TDS on e-commerce transactions, for instance, if a purchase transaction falls within both Section 194O and Section 194Q.
Section 206C(1H), which permits a seller to collect tax (TCS) for the amount received in exchange for the sale of goods if it exceeds Rs 50 lakh in any prior year, is an exception to this rule.
Only Section 194Q will be applicable in the event that a transaction involving the acquisition of goods generates both TDS under Section 194Q and tax collected at source under Section 206C(1H).
1. Tax Deducted at Source (TDS) is deducted in accordance with Section 194Q of the Income Tax Act whenever any money is credited to a “Suspense account” or any other account that is a component of the books of account of an individual who is required to make the payment.
2. When these kinds of transactions take place, the Income Tax Act’s Section 206C(1H) and Section 194Q both apply to the deductions. Nonetheless, Section 194Q requires the deduction in particular for certain circumstances.
3. Any purchases made from a non-resident supplier are not subject to Section 194Q of the Income Tax Act. Particularly, transactions involving resident sellers are covered by this provision.
4. The buyer may face the disallowance of expenditure if they do not follow the tax deduction guidelines provided in the Section 194Q) amendment. To be more precise, the disallowance may total as much as 30% of the transaction value. To prevent such repercussions, purchasers must strictly abide by the tax deduction guidelines.
5. Both revenue and capital goods purchases are governed by Section 194Q.
Read More: Why You Should Submit Your Income Tax Return
6. When making purchases over Rs. 50 lakhs, the TDS deduction is set at 0.1%. However, the deduction will be applied at a greater rate of 5% if the vendor does not have a PAN.
The Central Board of Direct Taxes has added Section 194Q to the Income Tax Act, 1961, and it went into force on July 1st, 2021. For customers who spent more than Rs. 50 lakhs on purchases from Indian suppliers in the preceding fiscal year, this section provides guidelines. When PAN card data are provided, the applicable rate of TDS on such purchases is 0.1%.
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