Section 194Q - Tax Deduction on the Purchase of Goods

CA.R.S.KALRA | Last updated: 09 November 2021

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Section 194Q of the Income Tax Act mandates buyers to deduct tax at source (TDS) at 0.1% on the purchase of goods exceeding £50 lakh in a financial year from a resident seller. This applies to buyers whose business turnover exceeded £10 crore in the preceding financial year. The deduction is made at the time of credit or payment, whichever is earlier. The section aims to streamline tax collection on goods transactions, with specific rules for when it overrides or is superseded by other tax provisions.

Deduction of tax at source on payment of certain sum for purchase of goods 194Q. (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 fi

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FAQ :

A buyer is required to deduct tax under Section 194Q if they are purchasing goods from a resident seller, the aggregate value of purchases exceeds £50 lakh in a financial year, and the buyer's business turnover in the preceding financial year was over £10 crore.

The TDS rate is 0.1% of the sum exceeding £50 lakh if the seller provides their PAN. If the PAN is not provided, the rate is 5%.

Section 194Q applies from 1 July 2021. For the financial year 2021-22, the buyer's turnover in FY 2020-21 must have exceeded £10 crore, and the purchase value from a resident seller must exceed £50 lakh in FY 2021-22.

Yes, TDS is applicable even on advance payments made for the purchase of goods. The deduction is made at the time of credit to the seller's account or at the time of payment, whichever occurs first.

Section 194Q does not apply if tax is deductible under another section (except Section 206C(1H)), or if tax is collectible under Section 206C (other than sub-section 1H). It also doesn't apply to transactions in securities and commodities traded on recognised stock exchanges or electricity traded through power exchanges.

No, Section 194Q does not apply to imports as it specifically applies to payments made to a 'resident' seller. For imports, the seller is typically a non-resident, so this section is not applicable, although Section 195 might apply.