Explore Section 194Q's impact on TDS for goods purchases, with clear examples and crucial FAQs.
Decoding TDS Applicability on Purchase of Goods
The Finance Act of 2021 brought forth Section 194Q of the Income Tax Act, revolutionizing Tax Deducted at Source (TDS) for goods purchases. Understanding its implications is vital for buyers and sellers alike. Get to know more about TDS Applicability.
TDS Applicability Under Section 194Q
The applicability of TDS under Section 194Q is on the purchase of goods only and not on services. The term “goods” refers to any tangible property other than securities, bullion, and jewellery. The TDS applies to the value of the goods purchased, 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.
To sum up –
- TDS under Section 194Q is applicable on the purchase of goods exceeding Rs. 50 lakhs in a financial year, and the TDS rate is 0.1% of the purchase value.
- The TDS provisions apply only to buyers whose turnover exceeds Rs. 10 crores in the previous financial year and who are not required to get their accounts audited under Section 44AB of the Income Tax Act.
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.
Let’s Delve Into the Specifics:
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Who Does Section 194Q Apply To?
This section applies to a buyer under the following conditions:
- Buyer’s turnover in the preceding fiscal year exceeded Rs 10 crore
- The buyer is responsible for payment to a resident seller
- Payment is for goods exceeding Rs 50 lakh in value
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Example of Section 194Q Application
Consider a buyer whose turnover surpassed Rs 10 crore in the fiscal year ending March 31, 2021. In the current fiscal year 2021-22, if they purchase goods worth over Rs 50 lakh, TDS must be deducted from the resident seller’s payment.
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TDS Rate and Calculation
TDS is deducted at 0.1% on the amount exceeding Rs 50 lakh. For instance, if a buyer purchases goods worth Rs 60 lakh, TDS is applicable only on the excess of Rs 10 lakh at the rate of 0.1%.
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Applicability Timeline
Section 194Q became effective on July 1, 2021. However, the Rs 50 lakh purchase threshold is considered from April 1, 2021.
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Role of GST
For the sake of Section 194Q, turnover is calculated excluding GST. However, TDS is calculated including GST.
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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.
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Non-Furnishing of PAN
If a seller doesn’t provide a PAN, TDS is deducted at 5% instead of 0.1%.
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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.
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TDS Return: Form 26Q
Quarterly TDS returns are due by July 31, October 31, January 31, and May 31 for respective quarters.
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Exceptions
Section 194Q doesn’t apply if TDS is deducted under any other ITA provision for the same purchase transaction.
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Mew 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.
Section 194Q Declaration Format
A 194Q Declaration Format must include the seller’s details, buyer’s responsibilities, and PAN confirmation.
Frequently Asked Questions (FAQs):
Will Section 194Q apply to the import of goods?
No, it applies only to transactions with resident sellers.
What are the consequences of not deducting or depositing the TDS?
Non-compliance may result in 30% of the amount becoming taxable income.
Can both Section 194Q and Section 206C(1H) apply to the same transaction?
Only Section 194Q applies in such cases.
The Bottom Line
Understanding and implementing Section 194Q 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.
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