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The Finance Act, 2021, introduced Section 194Q of the Income-tax Act, 1961, which is related to Tax Deducted at Source (TDS) on purchase of goods and not to the provisions of services.
This section applies to a buyer in the following cases:
For a financial year (FY) that ended on March 31, 2021, a buyer whose turnover was more than Rs 10 crore in that year needs to deduct TDS from their resident seller on the purchase of goods above Rs 50 lakh in the current financial year 2021-22.
Tax is to be deducted at source at the rate of 0.1% on the amount exceeding Rs 50 lakh in a financial year from a seller from whom the buyer has purchased goods worth more than Rs 50 lakh.
Let’s say a buyer purchases goods worth Rs 20 lakh, three times each from a seller, meaning he bought total goods of Rs 60 lakh. Now he has to deduct Rs 50 lakh from the total value of goods purchased. The TDS has to be deducted only on Rs 10 lakh at the rate of 0.1%.
Section 194Q of the ITA is applicable from July 1, 2021. So, the TDS has to be deducted only on purchases after July 1, 2021. However, the threshold limit of purchase of Rs 50 lakh has to be taken into account from April 1, 2021.
If a buyer has purchased goods worth Rs 80 lakh from a seller, then he has to deduct the first Rs 50 lakh from it as an initial deduction under Section 194Q and then deduct the TDS on the remaining Rs 30 lakh at 0.1%. So, the TDS applicable in this case would be Rs 3,000.
The TDS is to be deducted at a time when such amount is credited to the seller or paid to him, whichever is earlier.
In other words, if you have not paid any advance amount, then you have to deduct this TDS at the time of purchase of goods. However, if you have made an advance payment, then you have to deduct TDS immediately.
In cases where a seller fails to furnish a Permanent Account Number (PAN) to a buyer, the TDS would be deducted at the rate of 5% instead of 0.1%.
It is important to note that without PAN information, the rate of tax applicable in other cases is 20%. In the case of Section 194Q, the TDS rate applicable is 5%.
The TDS is to be deposited on or before the seventh day of the month following the month in which the TDS is deducted. For example, if the deduction month is January, the due date of payment is February 7.
However, in the case of March, the TDS can be deposited up to April 30.
For a quarter ending June 30, September 30, December 31, and March 31, the due date for filing TDS return is July 31, October 31, January 31, and May 31, respectively.
Section 194Q would not apply in cases where the TDS is to be deducted on the transaction of a purchase under any other provision of the ITA. For example, there may be a case where a purchase transaction comes under Section 194O as well as Section 194Q, then TDS would apply as per Section 194O, which relates to TDS on e-commerce transactions.
However, there is an exception in the case of Section 206C(1H), which provides for the collection of tax (TCS) by a seller for the amount received as consideration for the sale of goods if it is greater than Rs 50 lakh in any previous year.
If any transaction on purchase of goods attracts TDS under Section 194Q as well as tax collected at source under Section 206C(1H), then only Section 194Q shall apply in such a case.
No, it is applicable only when a buyer has to pay a sum only to a resident seller.
There could be two conditions:
In both cases, 30% of the amount on which the TDS is to be deducted and deposited will be added to the income of that individual.