The imposition of TDS on the purchase of goods is a first in the history of taxation in India. Although TCS is applicable for some specific transactions, the government has raised the bar for openness by imposing TDS on the purchase transaction. The Income Tax Act’s Section 194Q would cover a variety of transactions involving the purchase of items in this category.
TDS is a deduction made by an individual or a company during the payment process. Nevertheless, under Section 194Q of the Finance Bill 2021, TDS must be deducted even when purchasing goods. If you are a buyer, you must deduct TDS and pay it to the department. The addition of Section 194Q to the Income Tax Act of 1961 has made the deduction of TDS on the acquisition of goods significant.�
What is Section 194Q TDS on Purchase of Goods?�
The Finance Act of 2021 recently added Section 194Q to the Income Tax Act. A citizen who receives any payment for the acquisition of goods must pay TDS. According to Section 194Q, TDS is kept at a very low rate of 0.1%. The buyer is only obliged to deduct the tax if his total sales, gross revenues, or turnover from his firm during the financial year that ended just before the financial year in which the purchase of the products is made exceeds ten crore rupees. Such a person is obligated to deduct tax if the value of the products they purchased from the vendor in the previous year was more than fifty lakh rupees.
To Whom Does Section 194Q Apply?
According to the charging clause in this section, any buyer must pay a resident for the purchase of goods (not applicable for import purchases from a supplier outside India) when the value or aggregate of purchases from suppliers or payments exceeds Rs. 50 lakhs in the prior year, whichever occurs first. The transaction with that provider becomes effective if your total purchases from or payments for those transactions exceed Rs. 50 lakh. Following that, TDS must be subtracted from such purchases or payments at a rate of 0.10%, whichever comes first. An assessee whose total turnover in the year prior exceeded Rs. 10 crores would also be subject to this clause.
How to Calculate TDS under Section 194Q?
Discussed below are the ways TDS is calculated:
- A seller from whom the customer has acquired items worth more than Rs 50 lakh must deduct tax at source at a rate of 0.1% on the amount exceeding Rs 50 lakh in a financial year.
- Compute the TDS on Purchase og goods from a supplier for more than Rs 50 lakh during a financial year.
- TDS will be deducted following an Rs. 50 lakh deduction from the total cost of the goods.
- The threshold level is Rs. 50 lakh, which entails an annual deduction for each seller.
For Example: Let’s imagine a customer buys products from a seller for Rs 30 lakh every three times, for a total of Rs 90 lakh in purchases. He must now subtract Rs. 50 lakh from the total cost of the products bought. Just Rs. 40 Lakhs must have TDS deducted at a rate of 0.1%.
Conditions of Section 194Q
The provision of Section 194Q shall only be applicable in the following circumstances:
- The goods provider must be a resident of India.
- The buyer of products must be interpreted in line with the definition of the buyer provided in Section 194Q’s explanation.
- The quantity or total of values must have surpassed 50 lakhs in any prior year.
- For sums over 50 lakhs, TDS would be charged at a rate of 0.1%.
- If the transaction is liable to TDS and TCS under any other provision of the Income Tax Act of 1961, the requirements of this section do not apply.
- The requirements under Section 194Q take priority if they are met simultaneously with those under Section 206C (1H).
What Are the Consequences of Failing To Deduct or Deposit TDS?
In certain circumstances, failing to deduct or deposit TDS will result in penalties. If an assessee fails to deduct tax at the source or fails to pay tax after deducting it, they will be considered to be an assessee in default. Simple interest at the rate of 1% or 1.5% shall be payable to anyone who fails to deduct or fails to pay the tax after deducting.
Who Is Obligated to Deduct TDS?
Any person (deductor) who spends more than Rs. 50,00,000 in a single calendar year on goods from another person (deductee). The following people, on the other hand, are not deductors and are not required to deduct TDS:
- The new company: The year the company was created or incorporated is excluded from this.
- Turnover limit: Individuals with a gross annual turnover of less than Rs. 10 crores in the year before the year in which the products are acquired are exempt from this rule.
- Non-resident: Non-resident buyers are not covered by this. Nonetheless, this can apply if the buyer owns a Permanent Establishment (PE) in India.
FAQs on TDS on Purchase of Goods
Here are some frequently asked questions on TDS on Purchase of Goods:
What is the rate of TDS under Section 194Q in case of non-submission of PAN?
When a seller fails to provide a buyer with a PAN, the TDS is taken off at a rate of 5% rather than 0.1%. The TDS rate that applies in the instance of Section 194Q is 5%.
What is the due date to deposit TDS?
The TDS must be submitted by the seventh day of the month that follows the month in which it was deducted, at the latest.
What’s the difference between TCS and TDS 194Q?
Section 194Q (5) provides that no TDS will be deducted for transactions covered by Section 206C [except 206C (1H)]. Similarly, the second provision to Section 206C (1H) provides that TCS under this section would not be collected if the transaction was covered by another provision of the Act.
What exactly are 194Q goods?
Section 194Q applies to payments made to a resident seller for the acquisition of goods valued at or above Rs 50 Lakh in any prior year. It makes no difference whether the acquisition of commodities is a capital expenditure or a revenue expenditure.
What are the regulations for claiming TDS on purchases of goods?
If a buyer buys items worth Rs 80 lakh from a seller, he must deduct the first Rs 50 lakh as an initial deduction under Section 194Q and then deduct TDS at 0.1% on the remaining Rs 30 lakh. As a result, the TDS in this example would be Rs 3,000.
The Finance Act 2021 includes a new Section 194Q- TDS on Purchase of Goods. This clause went into effect on July 1, 2021. It applies to the buyer, who is liable for making any payment to the resident seller for the purchase of any goods where the value or aggregate of such payments exceeds INR 50 lakhs in any prior year.
The buyer must deduct TDS at the rate of 0.1% on purchases exceeding INR 50 lakhs. Section 194Q of the Income Tax Act requires the deductor or buyer to file a quarterly return in Form 26Q. In the event of a potential overlap between Section 194Q and Section 206C (1H), the provisions of Section 194Q shall apply to the transactions.
Read More:
