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TDS Applicability U/S 194Q On Purchased Goods

In the Finance Act of 2021, the Indian government inserted Section 194Q. The Indian government’s intention behind enacting this law was to generate a trail of high-value purchases and sales of products. 

What is Section 194Q?

As per this new provision 194Q, a buyer of the goods needs to deduct the TDS if the product bought by the buyer from a specific seller exceeds an annual value of INR 50 lacs. This indicates that if a person buys items from ‘X’ and his annual purchases exceed INR 50 lacs, he must deduct TDS on such purchases above INR 50 lacs limit. This provision has taken effect from July 1, 2021.

Which transactions would not be subjected to this TDS? 

The following list of transactions is not covered by 194Q:

  1. Purchases less than INR 50 lacs.
  2. Securities and commodity transactions are conducted through a recognised stock exchange or clearing organization.
  3. Power exchanges that facilitate the trading of electricity, energy-saving certificates and renewable energy certificates.
  4. Other sections of the Income Tax Act 1961 that applies to a transaction on which TDS has already been deducted.

Who is considered a Buyer?

Under section 194Q of the Income Tax Act 1961, tax is deductible by a buyer of goods. A buyer for the purpose of this section means a person whose gross receipts, turnover or total sales from the business carried on by him or her exceeds INR 10 crores during the immediately preceding financial year in which the purchase of goods is made.

Who is responsible to deduct TDS?

Any person who purchases and is responsible for paying the amount to a resident seller for the purchase of goods exceeding INR 50 lacs in any previous year, needs to deduct TDS under section 194Q.

When TDS needs to be deducted?

TDS needs to be deducted by a buyer, at the time of credit of the amount to the account of a seller or when payment is done, whichever is earlier.

At what rate tax is deductible?

TDS is deductible by the buyer at 0.1% of the amount paid or payable exceeding INR 50 lacs. In cases where PAN is not available, the TDS is deductible at 5%.

What is the threshold limit?

The threshold limit is Rs. 50 lacs.

Provision in case of purchase returns:

TDS needs to be deducted at the time of credit or of payment, whichever is earlier. Hence, before a purchase return happens, the TDS must have been deducted as per section 194Q on that particular purchase. If there is a purchase return and against such purchase return the sum is returned by the such seller to the purchaser, then this TDS deducted in the first place can be adjusted against any subsequent purchase from the same seller. However, no adjustment needs to be made if the purchase return was replaced by other goods as in such case the purchase on which TDS was deducted would be considered completed with goods replaced.

New FVUs Version 8.1 & 2.177 released by NSDL on 4th May, 2023

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