Hello Friends,

Welcome to my blog, In today’s session, I will let you know about the TDS Section 194Q.

TDS (Tax Deducted at Source) on the purchase of goods is governed by Section 194Q of the Income Tax Act, 1961. This provision mandates that the buyer deduct tax at source when purchasing goods from a seller if certain conditions are met.

This tutorial will provide a comprehensive guide on Section 194Q, covering the following points

• Overview of Section 194Q
• Applicability of Section 194Q
• Rate of TDS under Section 194Q
• Who is to Deduct TDS
• Exemptions under Section 194Q
• Procedure for Deducting TDS
• Deposit and Reporting of TDS
• Consequences of Non-Compliance

Overview of Section 194Q

Section 194Q was introduced in the Finance Act, 2021, and came into effect on July 1, 2021. It requires that any person (buyer) who is responsible for paying any sum to a resident seller for the purchase of goods exceeding Rs. 50 lakhs in a financial year must deduct TDS.

Applicability of Section 194Q

Buyer: A buyer whose total sales, gross receipts, or turnover from the business exceeds Rs. 10 crores in the financial year immediately preceding the financial year in which the purchase is made.
Transaction Value: The value of goods purchased exceeds Rs. 50 lakhs in a financial year.
Resident Seller: The seller must be a resident of India.

Rate of TDS under Section 194Q

The rate of TDS under Section 194Q is 0.1% of the purchase value exceeding Rs. 50 lakhs.

Who is to Deduct TDS

The buyer is responsible for deducting TDS at the time of crediting the amount to the seller’s account or at the time of payment, whichever is earlier.

Exemptions under Section 194Q

TDS under Section 194Q is not applicable in the following cases:

• If the transaction is subject to TDS under any other provision of the Income Tax Act.
• If TDS is applicable under Section 206C, except for Section 206C(1H).

Procedure for Deducting TDS

Step 1: Identify Transactions

Ensure that the purchase value from a single seller exceeds Rs. 50 lakhs in a financial year.
Confirm that the buyer’s turnover exceeds Rs. 10 crores in the previous financial year.

Step 2: Calculate TDS

Calculate 0.1% on the amount exceeding Rs. 50 lakhs.
Example:

Purchase Value: Rs. 80 lakhs
TDS Calculation: (80,00,000 – 50,00,000) * 0.1% = Rs. 3000

Step 3: Deduct TDS

Deduct Rs. 3000 from the payment to the seller.

Step 4: Issue TDS Certificate

Issue a TDS certificate (Form 16A) to the seller within the stipulated time.

Deposit and Reporting of TDS

Deposit TDS

The deducted TDS must be deposited with the government by the 7th of the following month in which TDS is deducted.

Filing TDS Return

File the TDS return quarterly using your suitable Form.

Steps for Depositing TDS

• Log in to the TIN NSDL website.
• Fill in the necessary details in Challan ITNS 281.
• Make the payment through net banking or other available options.

Consequences of Non-Compliance

Interest on Late Deduction

If TDS is not deducted, interest at the rate of 1% per month or part thereof will be charged from the date on which it was deductible to the date on which it is actually deducted.

Interest on Late Payment

If TDS is deducted but not deposited, interest at the rate of 1.5% per month or part thereof will be charged from the date of deduction to the date of payment.

Penalty

A penalty under Section 271H may be levied for failure to deduct or pay TDS.

Conclusion

Section 194Q aims to ensure tax compliance and monitor high-value transactions. Buyers must diligently identify applicable transactions, calculate, deduct, deposit, and report TDS to avoid penalties and interest charges.