Act

Section 194Q of Income Tax Act: Applicability, TDS Rate, Example, Turnover Limit

The Central Board of Direct Taxes recently added Section 194Q to the Income Tax Act of 1961, which will take effect on July 1st, 2021. The tax at source deduction on payments made to facilitate the purchase of goods is covered in this section. TDS 194Q Section was established in order to guarantee tax compliance and extend its use. TDS (Tax Deducted at Source) is a method of collecting taxes rather than a type of tax. To put it in simple words, it is a “pay as you earn” system of tax collection.

Section 194Q of the Income Tax Act

The Central Board of Direct Taxes (CBDT) introduced Section 194Q of the Income Tax Act of 1962. Regarding Tax Deducted at Source (TDS) and Tax Collected at Source (TCS), the Central Board of Direct Taxes published a set of rules. It provides a framework primarily for customers who spent more than 50 Lakhs on items from Indian sellers in the previous financial year. The TDS rate on the acquisition of goods is as low as 0.1% under Section 194Q.

Only the buyer’s account will be charged for income taxes. The sum is determined after taking into account the overall volume of sales, turnover, and gross receipts. If the yearly sales exceed 10 crores and the total worth of the commodities that a customer acquired from sellers in the previous year is at least 50 lakhs.

Difference between section 206C and section 194Q of the Income Tax Act

	Section 194Q	Section 206C
Who is in charge?	The Buyer	The Seller
Turnover Limitation	The buyer’s total sales, gross revenues, or turnover in the fiscal year before the fiscal year in which the items were acquired must have surpassed Rs. 10 crore.	The firm must have had more than Rs. 10 crore in total sales, gross revenues, or turnover in the fiscal year before the fiscal year in which the products were sold.
Threshold limit in Sales/ Purchase	Exceeding Rs. 50 Lakhs	Exceeding  Rs. 50 Lakhs
Time of collection/deduction	At the time of payment or credit	During the receipt time
Preference	The buyer would first need to deduct tax if the transaction could be referred to both clauses.	If the tax hasn’t been subtracted, it must be paid for by the seller.

Purpose of 194Q TDS

The government’s goal in introducing this provision was to provide a record of high-value transactions for purchasing commodities such as capital goods. The changes made in accordance with this provision have made it more difficult for taxpayers to comply since they affect the most fundamental business transactions, the buying and selling of products. Additionally, it was added by the government to cover any transactions for buying and selling items that were not covered by the other TDS subsections. It also aided the government by enforcing the rule requiring non-filers to pay their income tax obligations promptly.

To whom does section 194Q apply?

In the following circumstances, a buyer is covered by this section:-

1. A buyer whose sales, gross receipts, or turnover in the most recent fiscal year totalled exceeding Rs 10 crore
2. A buyer is accountable for paying an amount to the local supplier.
3. This payment must be made in order to acquire products with a value/aggregate worth greater than Rs. 50 lakh.

Who will deduct TDS under section 194Q?

The buyer, responsible for compensating the resident seller for acquiring goods worth more than fifty lakh rupees, must deduct TDS under Section 194Q of the Income Tax Act. The buyer is responsible for deducting the TDS and paying it to the government at the agreed-upon rate.

When to deduct TDS under section 194Q?

TDS under Section 194Q must be deducted as per the dates mentioned below.

• At the time of crediting the amount to the seller’s account or
• At the time of making payment of the amount to the seller.

Due Date for TDS Deposit

The TDS must be submitted by the 7th day of the month after the month in which it was deducted, at the latest. For instance, the payment is due on February 7 if the deduction month is January. The TDS can, however, be placed up to April 30 in March.

Threshold Limit of TDS

There is a 50 lakh rupee threshold limit for TDS under Section 194Q. If the value of the things you bought falls within this range, TDS won’t be necessary.

Not furnishing PAN

Deductible tax at source (TDS) would be 5% instead of 0.1% if a vendor did not provide the customer with a Permanent Account Number (PAN). Without PAN, the relevant tax rate in all other circumstances is 20%. The TDS rate under Section 1940 is 5%.

Form 26Q

The deadline for submitting a TDS return is on July 31, October 31, January 31, and May 31, respectively, for a quarter ending on June 30, September 30, December 31, and March 31.

Exceptions

• Despite the fact that purchasers are required to deduct tax at source, there are a few circumstances when buyers are excluded from doing so.
• The buyer is not required to deduct TDS if their primary residence is outside of India and their purchases have no connection to that country.
• In the year of incorporation, the buyer is exempt from TDS deductions. For instance, you are not obligated to deduct TDS if your firm was formed within the current fiscal year.
• The buyer is not required to deduct TDS if they acquire goods from a vendor whose income is tax-exempt.
• The transaction won’t be subject to section 194Q taxation if the tax is deducted under section 206C, with the exception of transactions for which section 206C (1H) applies.
• TDS is not necessary to be subtracted from any purchases made by institutions of the central or state governments.
• If a transaction is subject to both section 194Q and section 1940, the provider of the e-commerce platform must deduct tax in accordance with section 1940. The customer is liable for any TDS that is not deducted by the e-commerce¹ platform, though
• A stock exchange is exempt from having TDS deducted when it buys products or commodities. Electricity and renewable energy transactions are likewise excluded from TDS deductions.

Conclusion

Section 194Q TDS of the Income Tax Act of 1961 is a crucial provision that expands the tax foundation by adding additional transactions to the TDS net. Understanding 194Q is crucial for being a responsible citizen, especially for those involved in selling or buying commodities. To prevent legal action, it is vital to ensure Section 194Q requirements are followed. Businesses and individuals can handle their tax responsibilities more successfully if they comprehend the application and exemptions of Section 194Q.

Frequently Asked Questions

1. https://en.wikipedia.org/wiki/E-commerce