SECTION 194Q: TDS APPLICABILITY ON PURCHASE OF GOODS
Finance Act, 2020, sub-section (1H) was inserted into section 206C of the Income Tax Act. As per section 206C(1H), the seller of the goods receiving the consideration of value exceeding INR 50 Lakhs was required to collect TCS @ 0.1%. The provisions are effective from 1st October 2020
Finance Act, 2021, provisions of section 194Q relating to the deduction of tax at source on payment of a sum for the purchase of goods were inserted. As per section 194Q, the buyer paying for the purchase of any goods of value exceeding INR 50 Lakhs is made liable to deduct TDS @0.1%. Section 194Q is made effective from 1st July 2021.
In this article, let us understand briefly the provisions related to section 194Q under TDS:
Applicability of provisions of Section 194Q of the Income Tax Act:
The purchaser of the goods satisfying the following conditions is liable to deduct TDS under section 194Q –
1. Purchaser is responsible for paying a sum to any resident seller for the purchase of any goods; and
2. Value/ aggregate value is more than INR 50 Lakhs in the Financial Year; and
3. Total sales/ gross receipts/ turnover of the purchaser is more than INR 10 crores in the immediately preceding Financial Year.
Rate of TDS
Tax is to be deducted at source at the rate of 0.1% on the amount exceeding Rs 50 lakh in a financial year from a seller from whom the buyer has purchased goods worth more than Rs 50 lakh.
Calculation of TDS
- Purchase above Rs 50 lakh in a financial year from a seller
- TDS is to be deducted after a deduction of Rs 50 lakh from the total value of purchases
- The threshold limit is Rs 50 lakh, which means a seller-wise deduction in every financial year.
TDS Deposit Due Date:
The TDS is to be deposited on or before the seventh day of the month following the month in which the TDS is deducted. For example, if the deduction month is February, the due date of payment is March 7.
However, in the case of March, the TDS can be deposited up to April 30.
TDS Return: Form 26Q
For a quarter ending June 30, September 30, December 31, and March 31, the due date for filing TDS return is July 31, October 31, January 31, and May 31, respectively.
Section 194Q would not apply in cases where the TDS is to be deducted on the transaction of a purchase under any other provision of the ITA. For example, there may be a case where a purchase transaction comes under Section 194O as well as Section 194Q, then TDS would apply as per Section 194O, which relates to TDS on e-commerce transactions.
However, there is an exception in the case of Section 206C(1H), which provides for the collection of tax (TCS) by a seller for the amount received as consideration for the sale of goods if it is greater than Rs 50 lakh in any previous year.
If any transaction on the purchase of goods attracts TDS under Section 194Q as well as tax collected at source under Section 206C(1H), then only Section 194Q shall apply in such a case.
Important clarifications with regard to provisions of section 194Q:
Some of the doubts, emerging post the implementation of provisions of section 194Q, were clarified by the Central Board of Direct Taxes (CBDT) vide Circular No. 13 of 2021 dated 30th June 2021, and Circular No. 20 of 2021 dated 25th November 2021.
Important clarifications thereof are listed below –
Provisions of section 194Q will not apply to the following transactions in securities and commodities –
a. Transactions being traded through recognized stock exchanges;
b. Transactions cleared and settled by the recognized clearing operations (which also includes recognized stock exchanges/ recognized clearing operations located in International Financial Service Centre).
Provisions of section 194Q will not apply to transactions in electricity, renewable energy certificates, and energy-saving certificates which are traded through registered power exchanges.
The applicability of provisions of section 194Q with regard to purchase returns is explained hereunder –
TDS already deducted u/s 194Q, in case of purchase return, can be adjusted against the same seller in the next purchase, if the following conditions are satisfied –
- Tax is already deducted u/s 194Q;
- Purchase return happened after deduction of tax;
- The money is refunded by the seller.