Section 194Q of Income Tax Act, introduced in the Finance Act 2021, mandates that buyers deduct TDS (Tax Deducted at Source) at 0.1% on purchases of goods exceeding ₹50 lakh in a financial year. This applies to businesses with a turnover of ₹10 crore or more in the preceding year. The TDS is deducted on the amount exceeding ₹50 lakh and must be deposited with the government. Non-compliance can result in penalties and disallowance of expenses. Understanding Section 194Q is crucial for businesses to ensure smooth tax compliance and avoid legal complications.
Section 194Q TDS mandates that a buyer deduct 0.1% tax at source on purchases of goods exceeding ₹50 lakhs in a financial year from a resident seller. It applies to buyers with a turnover over ₹10 crores in the preceding year and came into effect on July 1, 2021.
TDS Applicability Under Section 194Q of the Income Tax Act
The provisions of Section 194Q of the Income-tax Act have been in effect since July 1, 2021. TDS shall be applicable only on purchases after July 1, 2021, whereas the threshold limit of ₹50 lakh will be calculated from April 1, 2021.
For example, A buyer may have purchased goods worth ₹80 lakhs from the seller, but the first ₹50 lakhs will be exempt from TDS. As per the TDS rate under Section 194Q, a tax of 0.1% will apply to the remaining ₹30 lakhs, resulting in a TDS deduction of ₹3,000.
The applicability of TDS on the purchase of goods under Section 194Q of the Income Tax Act is limited to tangible property, excluding securities, bullion, and jewellery, and does not apply to services. It is calculated on the purchase value, excluding GST.
It is important to note that the TDS under Section 194Q is applicable only if the buyer’s turnover exceeds Rs. 10 crores in the previous financial year. If the buyer’s turnover is less than Rs. 10 crores, then the TDS provisions under Section 194Q do not apply.
Section 194Q: Latest Update in the Budget 2025
In Budget 2025, a key update related to Section 194Q was removing Section 206C(1H), which previously required the collection of Tax Collected at Source (TCS) on the sale of goods exceeding ₹50 lakh. With this omission, only TDS under Section 194Q of the Income Tax Act will now apply to purchases exceeding ₹50 lakh. This change simplifies compliance for businesses by eliminating dual tax obligations on the same transaction.
Calculation of TDS
To calculate TDS under Section 194Q:
- Determine the total value of goods purchased from a seller.
- Deduct Rs 50 lakh from the total purchase value.
- Apply the TDS rate of 0.1% to the remaining amount.
When to Deduct TDS
TDS is to be deducted at the time of crediting the amount to the seller or making the payment, whichever comes first. In cases of advance payment, the TDS deduction is immediate.
Role of GST
For the sake of Section 194Q of the Income Tax Act, turnover is calculated excluding GST. However, TDS is calculated including GST.
Non-Furnishing of PAN
If a seller doesn’t provide a PAN, TDS is deducted at 5% instead of 0.1%.
TDS Deposit Due Date
TDS must be deposited by the seventh day of the subsequent month. For example, TDS deducted in January must be paid by February 7.
TDS Return Form 26Q
Quarterly File TDS Returns are due by July 31, October 31, January 31, and May 31 for respective quarters.
Exceptions
Section 194Q doesn’t apply if TDS is deducted under any other ITA provision for the same purchase transaction.
Exemption from TDS Deduction Under Section 194Q
Section 194Q of the Income Tax Act outlines certain conditions where Tax Deducted at Source (TDS) is not applicable. Below are the key exemptions:
- Threshold Limit: If annual purchases from a single seller are below ₹50 lakh, no TDS is required under Section 194Q.
- Buyer Turnover Condition: This section applies only to buyers with business turnover exceeding ₹10 crore in the preceding financial year. If your turnover is below this, TDS is not applicable.
- Overlapping TDS Rules: If the transaction is already covered by another TDS section, such as Section 194O for e-commerce, then that section takes precedence, and Section 194Q does not apply.
- TCS Provisions: If the transaction is covered under Section 206C of the Income Tax Act (excluding 1H), the seller is liable to collect tax, and TDS under Section 194Q is not required.
New Amendments Under Section 194Q
- Section 194Q operates when any amount is credited to a ‘Suspense account.’
- Non-resident sellers are exempted from Section 194Q
- Non-compliance with Section 194Q may lead to expenditure disallowance.
How to Write a TDS Declaration Format?
A 194Q Declaration Format must include the seller’s details, the buyer’s responsibilities, and PAN confirmation.
To,
Buyer’s Name & Address
Subject: Declaration/Information Regarding TDS Deduction Under Section 194Q of the Income Tax Act
Dear Sir,
In response to your letter dated ________, requesting our declaration/details concerning the deduction of tax at source under Section 194Q of the Act, please find the necessary information below:
- As your company is required to deduct TDS under Section 194Q of the Act, you may deduct tax at the rate of 0.1% on the sale consideration exceeding ₹50 lakh during the current financial year. We also confirm that we will not collect tax at source under Section 206C(1H) of the Act from July 1, 2021, onwards.
- Our company’s Permanent Account Number (PAN) is ____________. Additionally, we have duly filed our income tax returns for the last three assessment years.
The Bottom Line
Understanding and implementing Section 194Q of the Income Tax Act is essential for businesses and buyers involved in substantial transactions. It ensures tax compliance, fosters transparency, and contributes to a robust economic framework.
In conclusion, Section 194Q significantly impacts TDS on goods purchases. Understanding its nuances is crucial for seamless transactions. Adhering to its provisions ensures tax compliance and prevents penalties.
Stay informed and consult tax experts from Vakilsearch for accurate TDS implementation.
Frequently Asked Questions
What is the TDS for the 194Q electricity bill?
TDS under Section 194Q does not apply to electricity bills, as electricity is considered a service rather than a sale of goods.
Is 194Q affected by GST?
Yes, Section 194Q directs TDS deduction on purchase value for goods exclusive of GST, unless incorporated in the contract value.
Is 194Q applicable on a gas bill?
No. Section 194Q does not apply to a gas bill if gas is supplied as a service or if the buyer’s turnover is below ₹10 crores. It only applies if gas is treated as goods and the purchase value exceeds ₹50 lakhs annually.
What is the latest amendment to 194Q?
As per Budget 2025, Section 206C(1H) was omitted as a process; thus TCS does not apply to goods sold over ₹50 lakh and only Section 194Q will be relevant here.
Is 194Q applicable on taxable value or invoice value?
TDS under Section 194Q falls chargeable on the taxable value of goods without GST unless expressly stated otherwise in the agreement.
