According to the Finance Act, 2021, Section 194Q was added to the Income Tax Act of India, which became effective on July 1st, 2021. This section addresses the deduction of tax at source on payments made for the purchase of goods. To ensure tax compliance and broaden the application of TDS 194Q Section was created. We will examine the many facets of TDS under Section 194Q, including its applicability, calculation, exemptions, and other crucial considerations, in this extensive guide.
Section 194Q of the Income Tax Act, 1961, came into effect on July 1, 2021. It applies to any buyer who is responsible for paying any sum to any resident seller for the purchase of any goods, the value or aggregate of value of which exceeds 50 lakhs in any previous year.
The buyer, at the time of credit of such sum to the account of the seller or at the time of payment, whichever is earlier, is required to deduct an amount equal to 0.1% of such sum exceeding 50 lakhs as income tax.
The following conditions must be met for Section 194Q to apply:
If Section 194Q applies, the buyer must deduct TDS and deposit it with the Income Tax Department within 30 days of the end of the month in which the payment is made.
Section 194Q of the Income Tax Act, 1961 applies to any person, referred to as the buyer, who is responsible for paying any sum to a resident seller for the purchase of goods. When the value or aggregate value of such goods exceeds fifty lakh rupees in any previous year, the provision is triggered. The total sales, gross receipts, or turnover of the buyer's business should have exceeded ten crore rupees during the financial year that ended right before the year of the purchase in order to determine whether the buyer is covered by this provision.
The TDS is calculated in accordance with Section 194Q rate of 0.1% of the amount that exceeds fifty lakh rupees. For instance, if a buyer spends 60 lakh rupees on goods, the TDS will be deducted from 10 lakh rupees (60 lakh rupees - 50 lakh rupees). The TDS amount will therefore be 1000 rupees.
Under Section 194Q of the Income Tax Act, the buyer, who is accountable for paying the resident seller for the purchase of goods costing more than fifty lakh rupees, must deduct TDS. The buyer is in charge of withholding the TDS at the agreed-upon rate and paying it over to the government.
TDS under Section 194Q must be deducted; earlier, the dates listed below were:
Let’s use an illustration to better understand:
Mr A buys products worth 75 lakh rupees from Mr B, whose total sales in the previous fiscal year exceeded ten crore rupees. TDS under Section 194Q will be applicable in this situation. TDS will be calculated as follows.
Purchase price: Rs. 75,00,000
Threshold Limit: Rs. 50,00,000
TDS Amount: (75,00,000 - 50,00,000) * 0.1% = Rs. 25,000
As a result, Mr A must deduct 25,000 rupees as TDS when making the payment to Mr B.
The amount that exceeds fifty lakh rupees is subject to a 0.1% TDS rate under Section 194Q. However, if the seller's Permanent Account Number (PAN) is unavailable, the buyer would be required to withhold tax at a higher rate of 5%.
The buyer is required to withhold TDS at a higher rate of 5% instead of the usual rate of 0.1% if the seller fails to give the buyer their PAN. This measure promotes compliance and transparency by requiring sellers to provide their PAN.
Under Section 194Q, there is a 50 lakh rupee threshold limit for TDS. TDS will not be applicable if the value of the goods purchased falls within this range.
Section 194Q does not apply to transactions where TDS is already deductible under other provisions of the Income Tax Act, or to transactions where Tax Collected at Source (TCS) is collectable under Section 206C, except for transactions covered by Section 206C(1H). Buyers must confirm whether TDS under Section 194Q is applicable in each individual case.
To,
Name and address of the buyer
Sub: Declaration or information required by Section 194Q of the Act for a source tax deduction.
Dear Sir/ Ma’am,
This relates to your letter from _________, which requested our declaration and information regarding tax withholding at the source under Section 194Q of the Act. The following information is being provided:
To determine which compliance applies to a specific transaction, it is crucial to comprehend the distinctions between Section 194Q, Section 206C(1H), and Section 194O. A quick comparison is given below:
Section 194Q TDS must be deposited to the government by the 7th of the month following the month in which the TDS is deducted. For instance, if TDS is withheld on August 15th, it must be deposited by September 7th. However, for TDS deducted in the March month, it can be deposited by 30th April.
The buyer must provide the seller with a TDS certificate in Form 16B within fifteen days of the due date for furnishing the TDS return after deducting TDS in accordance with Section 194Q.
The deductee may claim a TDS credit in their income tax return. Additionally, Form 26AS on the income tax department website contains information about the tax deducted in accordance with Section 194Q.
To report the TDS deducted under Section 194Q, the buyer is required to submit a TDS return in Form 26Q. By the deadlines specified, the TDS return must be submitted quarterly.
Quarter | Due Date |
---|---|
From April to June | 31st July |
From July to September | 31st October |
From October to December | 31st January |
From January to March | 31st May |
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The provisions of Section 40a(ia) may apply if the buyer fails to deduct TDS as required by Section 194Q, in which case expenditures up to 30% of the transaction value may be disallowed.
For Section 194Q, a buyer must have had total sales, gross receipts, or turnover from the business he operated during the preceding Financial year exceeding Rs. 10 crores.
Yes, the transactions that are already subject to TDS under other provisions or TCS under Section 206C (with the exception of 206C(1H)) are not covered by Section 194Q.
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