TDS under section 194Q- Rate, applicability and exceptions

TDS under section 194Q

Government amazed the businesses by proposing a new TDS section in the Union budget 2021; it’s going to impact every business operations drastically in India. This new section 194Q is related to TDS on Purchase Transactions under Income Tax Act, 1961.

Government keeps amending, proposing and introducing Income tax sections in our country in order to widen the scope of catching the defaulters. Through this budget, TDS on Purchase Transactions are going to be implemented effective from 1st July 2021 as proposed by our Finance Minister Nirmala Sitharaman in her Budget speech on 1st Feb, 2021.

Read Also: What this Budget 2021-22 brought for a common man?

Rate of TDS u/s 194Q

The applicable rate of Tax Deducted at Source (TDS) under section 194-Q is 0.10%, it shall be applicable on aggregate purchases over & above Rs 50 Lakhs from a Supplier in India in a financial year.

Read Also: TDS rate chart applicable for FY 2021-22 (AY 2022-23)

Non- Applicability of Section 194Q

Section 194Q will be applicable from 1st July 2021, it will have a very vital and important ramifications on allow ability of important purchase transactions are concerned. This is going to be applicable to any person being a buyer responsible for making payment to a resident, however it’s not applicable for Import Purchases, that is from suppliers outside India for the purchase of goods.

It is also not applicable to services. This section will not apply to the assesses whose aggregate Turnover in the immediate previous year does not exceed Rs 10 Crore.

 The transaction with any supplier with addition of which your aggregate purchase/ payments for purchase from that supplier exceeds Rs 50 lakhs, it will be the transaction on which TDS will have to be deducted @ 0.10% of the Purchase transaction or payment thereof, whichever is earlier.

Read Also: Claim lower/nil TDS deduction- Form 15G, Form 15H and Form 13

How TDS under Section 194Q will be calculated?

Here, lets take an example that explains how TDS will be calculated if Babatax purchases goods worth Rs 2 Crore for his business. Babatax might have to track purchases from each supplier from very beginning to ascertain that as soon as purchase exceed Rs 50 lakhs TDS will be deducted @ 0.10% of the purchase transaction or payment thereof whichever is earlier.

In above case first 50 Lakhs of purchase shall be without TDS and on rest of Rs 150 Lakhs, TDS under section 194-Q will be deducted i.e. Rs 15000. That means for the rest of all the transactions during the year TDS will be deducted from each purchase transaction.

Read Also: TDS on various commission and Brokerages under Income Tax

What happens in case provisions of section 194Q are not complied with?

  1. If the seller doesn’t provide PAN then TDS rate applicable will be 5% of the Purchase transaction/ Payment thereof.
  2. If the Purchaser fails to deduct TDS as applicable, then Section 40A (IA) is going to provide that the value of Purchase transactions on which TDS is not deducted will be 30% disallowed as expense for calculation net profit. This means thereby that even purchases supported by Bills can be disallowed to the extent of 30% of the transaction value if TDS is not deducted.

In this Illustration cited above even if small amount of TDS was required to be deducted i.e. Rs 15000 only but if not deducted, huge disallowance of Rs 45,00,000/- will have to be borne by BabaTax (Purchaser).

Read Also: TDS on Rent in Income Tax – Section 194-I & Section 194-IB

Exceptions under section 194Q

TDS deducted on the transaction under any other section of the Income Tax Act except TCS collected under section 206 C (1H) of the Act  then TDS is not required to be deducted on the transaction.

Like for example, if TDS is deducted on transaction under section 194C then no TDS is required to be deducted under section 194Q. However, if Seller is required to collect TCS under section 206 (1H) then Purchaser will still be required to deduct TDS under section 194Q irrespective of TCS collected by Seller.

Whereas TCS will not be required to be collected if TDS is applicable on the transaction for deduction on the transaction under any other provision of law. But consequent to applicability of subject provision effective from 1st July 2021, there will not be a requirement to collect TCS under section 206 C (1H) in case Purchaser is required to deduct TDS under section 194-Q.

However, clarity or guidelines on this subject should be given by the Board in order to avoid conflicting interpretations.

Read Also: Surcharge on Income Tax, Everything you need to know

Why section 194-Q imposed?

This section is going to bring about a change where few large amounts of transactions are being traced without any trail or where GST amounts is being misappropriated. Govt. intends to bring all such purchase transactions under audit trail so that fake and frivolous transactions could be tracked or brought under the trail of TDS provisions and to be checked in the future, if required.

For any questions, you may reach us at Discussion Forum


The author of the above article is Sneha Bhalotia.

Disclaimer:The article or blog or post (by whatever name) in this website is based on the writer’s personal views and interpretation of Act. The writer does not accept any liabilities for any loss or damage of any kind arising out of information and for any actions taken in reliance thereon. 
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