Introduction
The Finance Act 2021 introduced Section 194Q of the Income Tax Act to regulate tax deduction at source (TDS) on the purchase of goods. The provision came into effect on July 1, 2021, and aims to enhance tax compliance, prevent tax evasion, and widen the tax base. This article delves into the meaning, applicability, benefits, limitations, and frequently asked questions (FAQs) related to Section 194Q.
Definition
Section 194Q mandates that a buyer, responsible for paying any sum to a seller for the purchase of goods, must deduct TDS at the rate of 0.1% if the aggregate purchase value in a financial year exceeds ₹50 lakh.
Application of Section 194Q
Section 194Q applies to transactions where:
- The buyer’s turnover or gross receipts in the preceding financial year exceed ₹10 crore.
- The total purchase amount from a single seller in a financial year exceeds ₹50 lakh.
- The goods purchased are not exempt from TDS.
- No other section of the Income Tax Act already covers TDS.
TDS is deducted when the amount is credited or the payment is made, whichever happens first.
Benefits of Section 194Q
- Improved tax compliance: Ensures that high-value transactions are reported to tax authorities.
- Prevention of tax evasion: Helps in tracking transactions and preventing income concealment.
- Widening of tax base: More businesses become part of the tax framework.
- Avoidance of double taxation: Helps in managing the tax credit system effectively.
Limitations of Section 194Q
- Increased compliance burden: Businesses must maintain extensive transaction records and ensure TDS deduction.
- Applicability confusion: Can overlap with other TDS provisions such as Section 206C(1H) (TCS on sales of goods).
- Cash flow issues: Deducted amounts impact liquidity for sellers.
- Exemptions and exclusions: May not apply uniformly across industries and sectors.
Comparison Table: Section 194Q vs Section 206C(1H)
| Feature | Section 194Q (TDS on Purchase) | Section 206C(1H) (TCS on Sale) |
|---|---|---|
| Applicability | Buyer with turnover > ₹10 crore | Seller with turnover > ₹10 crore |
| Threshold Amount | Purchase > ₹50 lakh | Sale > ₹50 lakh |
| Deduction/Collection | Buyer deducts TDS at 0.1% | Seller collects TCS at 0.1% |
| Point of deduction | Payment or credit (whichever earlier) | Receipt of payment |
| Responsibility | Buyer | Seller |
Conclusion
Section 194Q is a significant step toward increasing tax compliance and transparency in business transactions. While it imposes an additional compliance burden on businesses, it ensures a systematic approach to taxation. Businesses must stay updated with TDS regulations and integrate efficient tax management strategies to avoid penalties.
FAQs on Section 194Q
1. Who is liable to deduct TDS under Section 194Q?
A buyer whose turnover in the previous financial year exceeds ₹10 crore is liable to deduct TDS.
2. What is the TDS rate under Section 194Q?
The TDS rate is 0.1% on purchases exceeding ₹50 lakh in a financial year.
3. When should TDS be deducted?
TDS must be deducted at the time of payment or crediting the seller’s account, whichever is earlier.
4. What happens if TDS is not deducted under Section 194Q?
Failure to deduct TDS attracts interest and penalties under the Income Tax Act.
5. Does Section 194Q apply to non-resident buyers?
No, unless the purchase is made from a resident seller.
6. Can a seller claim credit for TDS deducted under Section 194Q?
Yes, the seller can claim TDS credit while filing income tax returns.
7. Is Section 194Q applicable to the purchase of services?
No, it applies only to the purchase of goods.
8. How does Section 194Q interact with GST?
TDS under Section 194Q is deducted on the purchase value excluding GST.
9. Does this section apply to capital goods?
Yes, if the purchase value exceeds ₹50 lakh and meets other conditions.
10. Yes, you can claim refunds through the income tax return (ITR) filing process?
Yes, you can claim refunds through the income tax return (ITR) filing process.
This guide provides a clear understanding of Section 194Q and its impact on businesses. Staying informed about tax laws is crucial for compliance and avoiding unnecessary penalties.
To visit: https://www.mca.gov.in/
Contact: 8130555124, 8130045124
Whatsapp: https://wa.me/918130555124
Mail ID: operations@vibrantfinserv.com
Web Link: https://vibrantfinserv.com
FB Link: https://fb.me/vibrantfinserv
Insta Link: https://www.instagram.com/vibrantfinserv2/