Section 194Q

Section 194Q of the Income Tax Act, 1961, mandates that a buyer of goods must deduct Tax Deducted at Source (TDS) on payments made to a resident seller.

Key Provisions

• Applicability: It applies to any buyer whose total sales, gross receipts, or turnover from business exceeded ₹10 crore during the financial year immediately preceding the financial year in which the purchase is made.

• Threshold: TDS is required only when the aggregate value of goods purchased from a single resident seller exceeds ₹50 lakh in a financial year.

• TDS Rate: The tax is to be deducted at the rate of 0.1% on the amount exceeding ₹50 lakh. If the seller does not provide their PAN, the rate increases to 5%.

• Timing of Deduction: TDS must be deducted at the earlier of two events:

  • When the amount is credited to the seller's account.

  • When the payment is made to the seller.

Important Considerations

• Exclusions: It does not apply to transactions on which TDS is deductible under other sections of the Act or where TCS is collectable under other provisions (except Section 206C(1H), which has been abolished effective April 1, 2025).

• Goods Only: The provision is strictly for the purchase of goods (both revenue and capital). It does not apply to the purchase of services.

• Imports: Section 194Q is not applicable to purchases made from non-resident sellers (i.e., imported goods).

• GST: TDS is generally calculated on the purchase value excluding GST, provided the GST component is indicated separately in the invoice.

Consequences of Non-Compliance

Failure to deduct or deposit TDS can result in:

• Interest: Interest at 1% per month for non-deduction and 1.5% per month for non-deposit.

• Disallowance of Expense: Up to 30% of the transaction value may be disallowed as an expense under Section 40(a)(ia) of the Income Tax Act, increasing your taxable income.

Summary: Section 194Q requires large buyers (turnover > ₹10 crore) to deduct 0.1% TDS on purchases of goods exceeding ₹50 lakh from a single resident seller. The deduction happens at the time of payment or credit, whichever is earlier.