SECTION 194Q : TDS ON PURCHASE OF GOODS

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.

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

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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.

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

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Note: –

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

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

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

TDS is required to be deducted: –

Few examples of date of deduction are: –

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

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NOTE: –

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

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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?

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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.

The TDS rate under this Section is: –

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No TDS if: –

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

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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: –

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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.

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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.

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FREQUENTLY ASKED QUESTIONS?

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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.

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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.

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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.

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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.

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FEW IMPORTANT POINTS

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