Section 194Q of the Income tax Act 1961

The Finance Act, 2021 has introduced a new section called Section 194Q of the Income Tax Act 1961, which mandates the specified buyer to deduct TDS on the purchase of goods from the resident seller.

In this article, the following things are covered-

• Provisions of section 194Q
• Exemption available under Section 194Q
• Rate of TDS deduction
• Time of deduction of tax
• Effective date of application of provisions of section 194Q

Bare Text of Section 194Q

After section 194P of the Income-tax Act, the following section shall be inserted with effect from the 1st day of July, 2021, namely -

Section 194Q - Deduction of tax at source on payment of certain sum for purchase of goods

1. Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, 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, deduct an amount equal to 0.10 per cent of such sum exceeding fifty lakh rupees as income-tax.

Explanation - For the purposes of this sub-section, "buyer" means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.

2. Where any sum referred to in sub-section (1) is credited to any account, whether called "suspense account" or by any other name, in the books of account of buyer, such credit of income shall be deemed to be the credit of such income to the account of the seller and the provisions of this section shall apply

3. If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the

4. Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and the person liable to deduct

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

• tax is deductible under any of the provisions of this Act; and
• tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies

Possible questions that may arise about the applicability of Section 194Q

A. Who is required to deduct tax under Section 194Q?

Any person being a buyer who is responsible to pay any sum to any resident for purchase of any goods exceeding fifty lakh rupees in any previous year shall deduct the TDS under Section 194Q

B. Whether all the buyers are mandatorily required to deduct tax as per the provisions of Section 194Q?

For the purposes of this sub-section, "buyer" means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.

C. Whether Section 194Q is applicable on all the purchases made by a buyer?

This section is applicable on all the purchases made by any buyer, whether it is capital purchases or revenue purchases.

D. Whether the provisions of section 194Q is also applicable to import purchases.

No, the provisions of section 194Q is only applicable when the payment is being made to resident seller i.e., it is not applicable on import purchases.

E. What is the time of deduction of tax as per the provisions of Section 194Q?

The buyer shall deduct tax as per the provisions of section 194Q at the time of credit or at the time of payment to the resident seller. Further, where any sum referred above 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 the credit of such income to the account of the seller and the provisions of this section shall apply accordingly.

F. At what rate TDS is required to be deducted under Section 194Q?

Under this section, TDS is required to be deducted at a rate of 0.1 % of the sum exceeding rupees fifty lakhs.

However, in the absence of Permanent Account Number (PAN) of the seller, the TDS is to be deducted at higher rate as prescribed in the Income Tax Act 1961 (presently at the rate of 5%)

G. Whether Section 194Q is applicable even when section 206C(1H) regarding collection of tax also applies to a transaction?

This section is not applicable when the provisions of section 206C(1H) applies to a transaction. In that case, the tax shall be deducted as per the provisions of Section 194Q only.

H. From which date, the provisions of Section 194Q is applicable?

The provisions of section 194Q will be applicable w.e.f. July 01, 2021

I. What are the exemptions available under the provisions of section 194Q?

The provisions of section 194Q are not applicable in the following cases -

1. Transactions on which TDS is already deductible under other provisions of the Income Tax Act; and
2. Transactions on which TCS is collectable as per provisions of section 206C [other than a transaction on which TCS is collectable under section 206C(1H)]