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

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?

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 the 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

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)

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 TurnoverSeller TurnoverTransaction ValueSection Applicable
7 Crore12 Crore53 Lakh*206C (1H)
12 Crore7 Crore53 Lakh*194Q
12 Crore12 Crore53 Lakh*194Q**
4 Crore4 Crore53 LakhNA
12 Crore12 Crore48 LakhNA
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).

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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.

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Compiled by- CA Chirag Agarwal (Practicing Chartered Accountants)

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