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Section 194Q - TDS on Purchase of Goods

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Maharshi Shah

Section 194Q
TDS
TDS Sections
Last updated on July 26th, 2021

What is Section 194Q?

A new section 194Q – TDS on purchase of goods has been introduced in the Income Tax Act 1961. This section takes effect from the 1st of July 2021. It applies to any buyer who is responsible for paying any sum to any resident seller for the purchase of any goods of the value or aggregate of value exceeding INR 50 Lakh in any previous year. The buyer at the time of credit of such sum to the account of the seller or at the time of payment, whichever is earlier, is required to deduct an amount equal to 0.1% of such sum exceeding INR 50 Lakh as income tax.

Applicability of Section 194Q – TDS on Purchase of Goods

The TDS on purchase of goods is not applicable on:

Calculation of Threshold of Section 194Q for the Financial Year 2020-21

TDS liability u/s 194Q will arise on all purchases booked or paid on or after 1.7 2021. Purchases booked or paid between 1.4.2021 till 30.6.2021 will be considered for determining the threshold purchase limit of Rs. 50,00,000/- in FY 2021-22.

Example

Suppose Mr. A purchases goods worth INR 20 lakhs on 30.5.2021. He purchases goods worth INR 50 lakhs on 1.7.2021. His turnover in the previous financial year 2020-21 was 15 crores.

TDS applicability will be as follows:
Since the turnover of Mr. A in previous FY 2020-21 was in excess of INR 10 Cr & the value of goods purchased by him in current FY 2021-22, exceeds INR 50 Lakhs (20 Lakhs plus 50 Lakhs = 70 Lakhs), so, Mr. A is liable to deduct TDS at 0.1% u/s 194Q of INR 2000 on purchases of INR 20 Lakhs. (70 Lakhs – exemption limit of INR 50 Lakhs).

Purchases of INR 20 Lakhs on 30-5-2021 will be taken into account in determining the threshold limit of INR 50 Lakhs for FY 2021-22 but TDS is to be deducted only on purchases made on or after 1-7-2021.

Suppose if, in the above example, Mr. A had purchased goods worth INR 70 lakhs on 30-6-2021 & INR 40 Lakhs on 1-7-2021, then Mr. A will be liable to deduct TDS at 0.1% of INR 4000, on purchases of INR 40 Lakhs.

FAQs

Can a non-resident be a buyer u/s 194Q?

The provisions of section 194Q of the Act shall not apply to a non-resident whose purchase of goods from seller resident in India is not effectively connected with the permanent establishment of such non resident in India.

Is tax supposed to be deducted on advance payment?

Since the provisions apply on payment or credit whichever is earlier, the provisions of section 194Q of the Act shall apply to advance payment made by the buyer to the seller.

Got Questions? Ask Away!

  1. Hey @Dia_malhotra

    As per section 194A, TDS on interest other than interest on securities is required to be deducted by any person other than Individual or HUF at the rate of 10%, when paid to a resident. No surcharge, education cess or SHEC shall be added to the above rate.

    Hope this helps!

  2. Hey @HarishMehta

    TDS u/s 194J needs to be deducted by deductor other than an individual or a HUF, @ 10% on any amount paid or payable to any which is in excess of INR 30,000 as:

    1. Fees for professional services
    2. Fees for technical services
    3. Any remuneration or fees or commission by whatever name called paid to a director ( other than salary)
    4. Royalty
    5. Any sum referred to in clause (VA) of section 28.

    Hope this helps!

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