Section 194Q | An analysis

Who is responsible for tax deduction at source under section 194Q?

Under Section 194Q, tax is deductible by the buyer of goods. "Buyer" for this purpose, means a person whose total sale, 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. However, "Buyer" does not include a person notified by the central government (Subject to such conditions as may be specified therein).

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 (or aggregate of such value) exceeding Rs. 50 lakh in any previous year, is required to deduct tax at source under section 194Q with effect from July 1, 2021.

When tax has to be deducted at source?

Tax should be deducted by the buyer, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier. Where, however, the above sum is credited to any account (whether called "suspense account" or by any other name) in the books of account of the person liable to pay such income, such credit of income shall be deemed to be credit of such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

Income subject to tax deduction under Section 194Q

If the following conditions are satisfied, then tax is deductible under Section 194Q:

Payer is "Buyer" of Goods
Payment/Credit is on or after July 1, 2021
Payment/Credit pertains to purchase of goods from seller
Aggregate payment/credit during the financial year exceed Rs. 50 Lakh.

If the above conditions are satisfied, the buyer is required to deduct tax at source under section 194Q.

When tax is not deductible?

Tax is not deductible under section 194Q if the following cases

Cases when TDS under Section 194Q not applicable

Comments

Case 1: if tax is deductible under any other section

If tax is deductible under any other section, then tax shall be deducted under that section and not under section 194Q. Even when tax is deductible under any other section (but not actually deducted by the payer), TDS provisions of that section will apply and not TDS under section 194Q.

Case 2: If tax is collectible under the provision of Section 206C (But other than sub-section (1H)

If a particular transaction is covered by TCS provisions of section 206C [other than sub-section (1H)], then tax will be collected by the seller (and tax is not deductible by the buyer under section 194Q).

If a particular transaction is covered by section 194Q as well as section 206(1H), then TDS under section 194Q will apply and not TCS under section 206C (1H).

Rate for Tax deduction at source during the financial year 2021-22

Tax is deductible under section 194Q with effect from July 1, 2021. Tax is deductible by buyer at the rate of 0.1% of the amount paid or payable exceeding Rs. 50 Lakh.

If the recipient does not furnish his PAN to the deductor, tax will be deducted at the Rate of 5% by virtue of section 206AA. PAN of the deductee should be mentioned in any correspondence and document which is exchanged between the deductor and deductee.

Tags :income tax