Section 194Q of Income Tax Act.

Section 194Q of Income Tax Act 1961 – Payments to a Resident for the purchase of goods.

Introduction to Section 194Q of Income Tax Act

Section 194Q of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) specifies that every buyer at the time making payment to a resident seller is required to deduct tax where such payment exceeds the threshold limit.

Who is liable to deduct TDS under Section 194Q?

As per Section 194Q, buyers who fulfil the following conditions are required to deduct TDS on the purchase of goods at the time of payment:

• Buyer must be engaged in business activity;
• Buyer must pay any sum to a resident person;
• company’s sales, gross receipts, or turnover were more than Rs. 10 crores in the financial year preceding the purchase of the products;
• The value of all purchases made in a given year exceeds Rs. 50 lakhs;
• Payment must be made to a seller who is an Indian resident.

Rate of TDS under Section 194Q of Income Tax Act

TDS on the purchase of goods is required to be deducted at the rate of 0.1%. Surcharge or Health and Education Cess will not be added to these rates. If the deductee doesn’t provide his PAN to the deductor, the tax will be deducted under Section 206AA at 20%. If the deductee has not filed their applicable tax return for a specified period, then tax will be deducted at the rate prescribed by Section 206AB.

Threshold limit under Section 194Q

Section 194Q of the Act provides for deduction of tax at a specified rate by the buyer if the value of the goods purchased exceeds Rs. 50 lakhs in any previous year.

Timing of deduction under Section 194Q

TDS on purchase of goods by the buyer must be deducted by him at the time of payment or credit of consideration for the goods purchased to the seller’s account by any mode, whichever is earlier.  Tax will be deducted even if the sum is credited to the ‘Suspense Account’.

Exemption on TDS under Section 194Q of Income Tax Act

Listed below are certain cases where the buyer is not required to deduct tax at source for purchasing goods from a seller.

1. Non-Resident buyer

Nonresident buyer is not required to deduct TDS if the purchase of products or goods is not effectively connected with the permanent establishment in India.

2. Year of Incorporation of Business

A business, if it makes any purchase of goods in its year of incorporation is not  required to deduct any TDS under this Section.

3. Goods Purchased from Income Exempted Person

TDS is not required to be deducted when goods are bought from a person exempt from income tax under the Act or any other Statute passed by the Parliament. But this exemption can’t be used if only a part of the seller’s income is exempted.

4. Deductible under any other provision under Income Tax Act, 1961

If such income is taxable under any other provision of the Act, then the income will not be taxable under Section 194Q.

 5. Tax Collectable under Section 206C

If tax is collectable under Section 206C other than a transaction to which subsection (1H) of section 206C applies, then such transaction shall be exempt from TDS under Section 194Q.

6. Tax Deduction at Source (TDS) for Government Agencies

If a government department is not engaged in commercial or business activity, it is not considered a “buyer” under this Section. Thus, no TDS will be deducted on the purchases of such agencies, whether Central or state. Also, no other person, agency or department, including a PSU or a corporation formed under a Central or state Act, is subject to TDS under this Section.

7. When both Section 194Q and Section 194-O apply to a transaction

If both Section 194-O and Section 194Q are applicable on a given transaction, then TDS must be deducted under Section 194-O. As a result, the TDS deduction shall rest with the e-commerce platform provider, and the buyer will be relieved of his responsibility under Section 194Q to withhold the tax. However, if the e-commerce service provider defaults,  the responsibility of deduction of TDS shall fall on the buyer.

8. Transactions are carried through exchanges.

TDS on purchase of securities (and commodities) transactions executed through a recognized stock exchange or cleared and settled by a recognized clearing corporation is exempt from TDS on purchase of goods. This includes transactions conducted through stock exchanges or clearing corporations in an International Financial Service Centre (IFSC).

Furthermore, this provision exempts the necessity of TDS transactions involving electricity, renewable energy certificates, and energy-saving certificates transferred through power exchanges registered in compliance with Regulation 21 of the CERC.

TDS Sections

• Section 192 of Income tax act
• Section 193 of Income tax act
• Section 194 of Income tax act
• Section 194B of Income tax act
• Section 194C of Income tax act
• Section194EE of Income tax act
• Section 194H of Income tax act
• Section 194I of Income tax act
• Section 194IA of Income tax act
• Section 194 J of Income tax act
• Section 194K of Income tax act
• Section 194LD of Income tax act
• Section 194LBB of Income tax act
• Section 194M of Income tax act
• Section 194N of Income tax act
• Section 194O of Income tax act
• Section 194Q of Income tax act
• Section 194R of Income tax act