Legal Guide

Everything to Know About Section 194q of the Income Tax Act

by Bhavya Choudhary · 4 min read

section 194q of Income Tax

Introduction

The Central Board of Direct Taxes recently introduced Section 194q of the Income Tax Act, which came into effect on July 01, 2021. This section applies to buyers who are into the purchase of goods and services from sellers of India exceeding an amount of Rs 50 lakhs for a financial year(preceding).

What is Section 194q of the Income Tax Act?

The amount of purchase exceeding Rs 50 lakhs will be deducted at a flat rate of 0.1% TDS. As per Section 194q of the Income Tax Act, the TDS has been deducted from buyers’ accounts which are calculated by taking into consideration :

  • Total sales of the buyer
  • Total turnover
  • The gross receipts

The TDS, as per Section 194q of the Income Tax Act, does not apply to purchases or imports from sellers who are settled outside India. 

  • This is only applicable to Indian buyers and sellers. If the buyers need help regarding the payable tax, they can opt for legal consultancy services, which will clear their queries. 
  • The main objective of the Government for bringing section 194q of the Income Tax Act into effect is to keep check and record every huge transaction that may have taken place without GST.
  • It was framed by the CBDT to audit big transactions by tracking and controlling any fake ones that may be used under the heads of TDS law provisions. 
  • In other words, the TDS under Section 194q of the Income Tax Act will be taken from the buyer’s account when a debt of more than Rs 50 lakh is found. The deductible occurs on the exceeded amount.
  • For example, contract employees have purchased goods worth Rs 70 lakhs. So, here they are liable to pay their TDS on the extra 20 lakhs because 50 lakhs is the limit and above it will be charged for TDS under specified Section 194q of the Income Tax Act.
  • At the time when purchase returns are credited to the contract employees’ accounts, the seller refunds the buyers in case any amount is deducted for TDS. It also can happen that the deducted amount gets adjusted to the next purchase with the same seller.
  • The goods can also be replaced by the seller or exchanged, which will not be adjusted.

When is TDS deducted?

  • The TDS is deducted when the seller receives an advance or during the payment of the transaction of goods. 
  • If any advance was not paid, the TDS is deducted when the total amount is given, and if any advance was made, then the TDS is cleared immediately. 
  • In many cases, the seller might be unable to provide PAN details which are Permanent Account Numbers, to another buyer. This makes the TDS deductions 5% rather than 0.1%.
  • In other cases, the tax rate is 20% without the PAN card no. For TDS specifically, this is 5%.

On the day of submission 

  • The TDS is to be deducted on the 7th day of each month following the earlier month when TDS was deducted.
  • For example: if the deducted month is April, then May 07 is the day of the TDS deduction’s due date.
  • It is to be noted that only for March, the deduction due date lasts up to April 30. 

Consequences of Non-Deductions of TDS

There are generally two conditions and how it affects the non-deduction of TDS under Section 194q of the Income Tax Act. These are as follows:

  • A resident seller may have received a payment that is TDS deductible, but the seller has been unable to do so and is pending TDS payments under Section 194q of the Income Tax Act.
  • The same seller has deducted TDS, but the payment or amount was not deposited before the due date of the TDS deductions as per section 194q of the Income Tax Act.

What are the Exemptions?

  • As per Section 194q of the Income Tax Act, the transactions or TDS deductions do not apply if the same is covered under any other provisions of the Income Tax Act.
  • For example: if a transaction of TDS or Income Tax Act is payable both under 194O and 194Q, then it will be applied and deducted as per 194O which relates to e-commerce transactions.
  • In section 206C (1H) where tax is collected by a seller for any payment or amount that they receive as consideration for goods sale that is more than Rs 50 lakhs for any previous year.
  • If any transaction has TDS deductions for both sections as per section 206C (1H), then only Section 194q of the Income Tax Act will be applicable here for the transaction.

Section 194q of Income Tax Act Amendments

  • As per Section 194q of the Income Tax Act, the TDS deductions take place for amounts that are credited to “suspense a/c” or any other account that is entered into the books of accounts for a taxpayer, and thus they are liable to complete the payments. 
  • If any transaction has TDS deductions under both Section 194q of the Income Tax Act and section 206C (1H), then they are liable and deducted only on Section 194q of the Income Tax Act.
  • Section 194q of the Income Tax Act does not apply to residents outside India. 
  • A 30% transactional valued disallowance in expenditures is implied if there is any non-compliance with the TDS deductions under Section 194q of the Income Tax Act.
  • Purchase of revenue or capital will attract TDS deductions as per 194q provisions. 

Conclusion

  • Calculations and deductions for TDS under Section 194q of the Income Tax Act can be a hassle-some task where a buyer and seller have to go through a lot of transactions and provisions to understand the terms. 
  • It is advised to take legal consultancy services and clear the necessary steps and compliance rules which will help in maintaining books of accounts.

Consulting a lawyer will enable the individual, either buying or selling, to understand the rates of TDS and how to complete provisional formalities by deducting it on time and keeping it hassle-free.

Bhavya Choudhary

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Bhavya Choudhary

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