This discussion explains Section 194Q of the Income Tax Act, which requires buyers with a previous financial year turnover exceeding Rs. 10 crore to deduct TDS at 0.1% on goods purchases exceeding Rs. 50 lakh annually. The CBDT has issued guidelines to clarify this section, which came into effect on 1st July 2021, and is essentially the reverse of Section 206C(1H) concerning TCS.
The income tax department issued a circular dated 30th June 2021 laying down the guidelines for TDS deduction under section 194Q. These guidelines are given to remove this section’s difficulties and related sections 194-O and 206(1H).
Section 194Q was inserted by the Finance Act 2021, which is applicable from 1st July 2021. Section 194Q applies to a buyer who has a:
Turnover of more than Rs.10 crore in the previous financial year.
He purchases goods exceeding Rs.50 lakh of value in a year.
Such a buyer has to deduct TDS at the rate of 0.1% on the amounts exceeding Rs.50 lakh. This section is exactly the opposite of section 206C(1H), where TCS must be collected
Any person, being a buyer who is responsible for paying any sum to any seller (being a resident) for purchase of any goods (including capital goods), where the value or aggregate of such values, exceeds ₹50 lakhs in any P.Y., shall deduct TDS.
Applicable w.e.f.: 1st July, 2021.
Rate of TDS: 0.1% (5% in case PAN is not furnished) of the purchase value exceeding ₹50 lakhs.