Section 194Q Explained: TDS on Goods Purchase in India

Introduction: Section 194Q of the Indian Income Tax Act mandates the deduction of Tax Deducted at Source (TDS) on the purchase of goods. This regulation primarily affects buyers who make payments to resident sellers for goods. As per this section, if the total value of goods purchased from a seller exceeds Rs. 50 lakh in the preceding financial year, the buyer is required to deduct TDS at the rate of 0.1% on the amount exceeding this thres

Eligible Deductor:

A buyer must deduct tax at source if:

• They are conducting business.
• They are paying a resident seller for goods.
• Their total sales, gross receipts, or turnover exceeds Rs. 10 crores in the preceding financial year.
• The value of goods purchased from the seller exceeds Rs. 50 lakhs in any previous year.

Exeptions

The following are not considered buyers under this provision:

• Air India Assets Holding Limited in the case of goods transferred by Air India Limited under a government-approved plan.

• Government departments not engaged in business or commercial activities

Rate of TDS and Threshold Limit

• TDS is applicable if the purchase value exceeds Rs. 50 lakhs in any previous year.
• The rate is 0.1% of the purchase value exceeding Rs. 50 lakhs.
• If the deductee does not provide their PAN, the rate is 5% under Section 206AA or Section 206AB.

Time of Deduction:

Tax must be deducted at the time of credit to the seller’s account or payment, whichever is earlier. This includes advance payments.

Exemptions from TDS: No tax is required in the following cases:

• Non-resident buyers if the purchase is not connected with a permanent establishment in India.
• During the year of business incorporation.
• Transactions in securities and commodities traded through recognized stock exchanges or clearing corporations.

TDS on E-commerce Transactions: E-commerce operators must deduct tax under Section 194-O. If a transaction falls under both Section 194-O and Section 194Q, the operator deducts the tax first. If they default, the buyer must deduct the tax.

TDS vs. TCS: If a transaction is covered under both Section 194Q and Section 206C(1H), the buyer deducts the tax first. If the seller collects tax under Section 206C(1H) before the buyer deducts it, the buyer does not need to deduct it again.

TDS in Case of Purchase Return: If the seller refunds the money for a purchase return, the tax deducted can be adjusted against the next purchase. No adjustment is needed if the purchase return is replaced by goods.

Adjustment for GST and other State levies & taxes:

Tax under this provision shall be deducted on the amount credited without including GST & other non-GST levies if the followingconditions are satisfied:

1. Tax is deducted at the time of credit of the amount in the account of the seller; and
2. The component of GST and non-GST levies comprised in the amount payable to theseller is indicated separately as per the terms of the agreement or contract between thebuyer and the seller.

However, if the tax is deducted on payment basis because the payment is earlier thanthe credit, the tax would be deducted on the whole amount as it is not possible to identifythe payment with GST component or non-GST levies component to be invoiced infuture.

Deposit of TDS: Tax deducted must be deposited to the Central Government through Challan ITNS 281 within 7 days from the end of the month in which it was deducted. For March, the deadline is April 30th of the next financial year.

Consequences of Non-Compliance: Failure to deduct or deposit tax results in being treated as an assessee-in-default, with applicable interest and penalties. Penalties and prosecution may apply for non-compliance, with provisions for compounding offenses

Conclusion: Understanding Section 194Q is crucial for businesses purchasing goods in India. Compliance ensures accurate TDS application, benefiting both buyers and sellers. This guide helps navigate the complexities of TDS on goods purchases, ensuring compliance and financial transparency.

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