SECTION 194Q TDS ON PURCHASE

TDS U/S 194Q: TDS ON PURCHASE OF GOODS

1. What do you mean by TDS?

TDS stands for Tax Deducted at Source. TDS is a kind of tax that is deducted by the payer before making certain payments like Salary, Rent, Commission, Interest, Royalty, Professional Fees etc. to the payee.

TDS is required to be deducted at the source if the money to be paid and the money already paid exceeds a specified amount.

The Payee can claim this tax deducted by the payer while paying his income tax liability for the year, and if the TDS deducted is more than the income tax liability of the assessee then he/ she will be entitled to a refund.

The main purpose of introduction of TDS was to reduce the Tax evasion by the person receiving the income.

Note: -

Payer- A payer is a person or organization who is responsible for deducting TDS before paying the amount to Payee.

Payee- A Payee is a person or organization who receives the payment from the payee after the TDS deduction.

2.  What is TDS under Section 194Q of Income Tax Act?

Section 194Q of Income Tax Act, 1961 mandates that TDS to be deducted by purchaser of goods while making the payments to the payer.

3. When is TDS to be deducted under Section 194Q?

TDS is required to be deducted: -

• At the time of payment.

            Or

• At the time of crediting the account of payee, whichever is earlier.

Few examples of date of deduction are: -

4. Who is required to deducts TDS under Section 194Q?

The Section applies to a buyer in the following cases: -

• A buyer whose turnover or gross receipts in the immediately preceding financial year was more than Rs. 10 Crores and
• A buyer is responsible for making payment of a sum to resident seller and
• Such deduction is to be done for purchase of goods of the value/ aggregate of value exceeding Rs. 50 lakhs

NOTE: -

This section i.e. TDS u/s 194Q is not applicable when seller is non- resident.

Example: -

Aryan Ltd a domestic company has a turnover of Rs. 12 crores during the financial year 2023-24, purchased goods worth Rs. 85 lakhs from M/s Varun & Co. a resident firm. The details of payments are as follows: -

On 28/05/2024- 30 lakhs, 28/06/2024- 25 lakhs, 10/12/2024- 20 lakhs, 20/02/2025- 10 lakhs. What are the TDS implications?

Since the turnover of Aryan Ltd. during the Previous year exceeds Rs. 10 crores and during the current year purchases from M/s Varun & Co. exceeds Rs. 50 lakhs, Aryan Ltd is liable to deduct TDS u/s 194Q.

5. Rate of TDS under Section 194Q?

The TDS rate under this Section is: -

6. Exemption under Section 194Q?

No TDS if: -

• The purchase amount is less than Rs. 50 lakhs during the current financial year.
• TDS is deductible under any other section.
• TCS is collectible u/s 206C (other than Section 206C(1H)).
• If Turnover during the immediately preceding financial year is less than Rs. 10 crores or when it is their first year of incorporation.

7. Time limit for deposit of TDS under Section 194Q?

The due date for deposit of TDS is as below: -

8. What is the due date for filing of TDS return under Section 194Q?

TDS is to be deposited monthly on the dates mentioned above but the return is to be filed quarterly on or before the below mentioned dates: -

9. Type of TDS return & form to be issued?

TDS under this section has to filed quarterly through FORM 26Q and the deductor has to issue FORM 16A to the employee after filing of return.

10. Fees/ Penalties for Late/ Non- Filing of TDS u/s 194Q?

Following penalties/fees will be levied if there is delay in TDS deduction or delay in deposit of TDS or non-filing of quarterly return.

FREQUENTLY ASKED QUESTIONS?

Q. Is there any threshold under Section 194Q?

A. The threshold under this section is Rs 50 lakhs i.e. if the purchase increases Rs. 50 lakhs then only TDS applies only to the amount above Rs. 50 lakhs.

Q. Is 194Q applies to non-residents?

A. NO, Section 194Q does not apply if seller is a non – resident, but in case the non- resident seller has a PE in India and purchases are related to that PE, then 194Q will apply.

Q. Does amount on which TDS u/s 194Q is deducted also includes indirect expenses?

A. NO, indirect taxes like gst has to be deducted for deducting amount under Section 194Q.

Q. Does this section 194Q also includes transactions carried through various exchanges?

A. NO , transaction in securities and commodities market which are traded through recognized stock exchanges or cleared or settled by recognized clearing corporation including recognized stock exchanges or RCC located in IFSC or transaction in electricity, renewable energy certificates and energy saving certificates traded through power exchanges.

FEW IMPORTANT POINTS

1. In case of a transaction to which both Section 206(1H) and 194Q applies the TDS has to be deducted under Section 194Q.
2. In case of a transaction to which both Section 194O and 194Q applies the TDS has to be deducted under Section 194O.
3. If the seller whole income is exempt under Income Tax Act (like 10(23A), 10(44)), the TDS u/s 194Q not applicable.
4. While checking last year turnover of buyer it should include only business turnover or gross receipts and it should be more than Rs. 10 crores, non-business turnover not to be counted.