Section 194Q: Applicability, non-applicability, rate, and example

Spread the knowledge of Tax

Last year from 1st July 2020, the government had introduced a new TCS provision u/s 206C(1H). This section was for “seller of goods” on receipts/advance from/for sale of goods, exceeding Rs. 50 Lakhs as a consideration during the financial year.

Section 194Q of the Income Tax Act, 1961- Now In Budget 2021, a new section of TDS 194Q introduced which would be effective from 01.07.2021. Here in this article, we will try to clear all doubts relating to section 194Q.

Section 194Q of the Income Tax Act, 1961

Here are the full details of section 194Q-

Who is required to deduct TDS u/s 194Q?

Applicability of section 194Q
Section 194Q of the Income Tax Act

As per this section, any person being a buyer who is responsible for paying any sum to any resident seller for the purchase of any goods of the value of the aggregate of value exceeding Rs 50 lakh in any previous year, shall deduct TDS at the time of payment or at the time of credit, whichever is earlier.

What is the time of deduction of TDS u/s 194Q?

Buyer is required to deduct TDS at the time of earlier of the following-

1. at the time of payment to seller, or

2. at the time of credit of such amount to the seller account.

Also Read- AY 2022-23: Applicability of TDS/TCS Rate and Threshold

Who is the Buyer U/s 194Q?

“Buyer” means a person whose total sales, gross receipts, or turnover from the business carried on by him exceed Rs. 10 Crore during the Financial Year immediately preceding the Financial Year in which the purchase of goods is carried out.

Non-applicability of the section 194Q

Non-applicability of section 194Q
Section 194Q of the Income Tax Act

The provisions of this section shall not apply to a transaction on which-

a) tax is deductible under any of the provisions of this Act &

b) tax is collectable u/s 206C(1H)

Must Read- Section 206AB: Higher Rate of TDS for non-filers of Income Tax Return

What are the TDS rates u/s 194Q of the Income Tax Act?

U/s 194Q TDS shall be deducted by the eligible buyer of the goods at the rate of 0.10% of such sum exceeding Rs. 50Lakh.

and in case, PAN no. is not available of the seller then the applicable rate is 5%.

Example-

Buyer Turnover Seller Turnover Transaction Value Section Applicable
7 Crore 12 Crore 53 Lakh* 206C (1H)
12 Crore 7 Crore 53 Lakh* 194Q
12 Crore 12 Crore 53 Lakh* 194Q**
4 Crore 4 Crore 53 Lakh NA
12 Crore 12 Crore 48 Lakh NA
Example- Section 194Q of the Income Tax Act

** it is clear that if on a transaction a TDS or tax collection at source (TCS) is required to be deducted under any other provision, then it would not be subjected to TDS under this section. However, there is one exception to this general rule is that if on a transaction TCS is required under sub-section (1H) of section 206C as well as TDS under this section, then on that transaction only TDS u/s 194Q shall be deducted. (Point 3 of example)

* In above examples TDS/TCS would be apply on 3 lakh (53-50).

Related Article-

🎯 Know the Difference Between Form 24Q and Form 26Q

🎯 Know the difference between form 16 and 16A

Disclaimer: The information contained in the above article are solely for informational purpose after exercising due care. However, it does not constitute professional advice or a formal recommendation. The author does not own any responsibility for any loss or damage caused to any person, directly or indirectly, for any action taken on the basis of the above article.

New Tax Route Facebook

Feedback/Suggestion- Hope you all find it useful, please give your valuable feedback & let us know if there is an error. Thanks in Advance

Compiled by- CA Chirag Agarwal (Practicing Chartered Accountants)


Spread the knowledge of Tax

Leave A Reply

Your email address will not be published.