Section 194Q of the Income Tax Act was introduced in the Union Budget 2021 with an aim to widen the tax base and increase tax compliance. This section imposes a TDS (Tax Deducted at Source) on purchases of goods exceeding Rs. 50 lakhs in a financial year. Let’s understand this section in detail.
What is Section 194Q of the Income Tax Act?
Section 194Q of the Income Tax Act applies to buyers of goods. According to this section, if a buyer purchases goods worth more than Rs. 50 lakhs in a financial year, they will have to deduct TDS at the rate of 0.1% from the payment made to the seller. This TDS will be applicable on the amount exceeding Rs. 50 lakhs.
Who is liable to deduct TDS under Section 194Q?
Section 194Q applies to buyers who are engaged in business or profession and their annual turnover or gross receipts exceed Rs. 10 crores in the previous financial year. However, this section does not apply to individuals or HUFs (Hindu Undivided Family) who are not liable to audit their accounts under Section 44AB of the Income Tax Act.
What are the exemptions under Section 194Q?
The following transactions are exempt from TDS under Section 194Q:
- Transactions covered under Section 194-IA (TDS on payment for the transfer of certain immovable property) and Section 194-IB (TDS on payment of rent by certain individuals or HUFs).
- Transactions on which TCS (Tax Collected at Source) is applicable under other provisions of the Income Tax Act
- Transactions where the seller is subject to TDS under any other provision of the Income Tax Act and tax has been deducted at source on the same.
- Transactions where the buyer is a public sector company, a resident who is engaged in the business of generation or distribution of electricity, or any other person notified by the Central Government.
When does TDS under Section 194Q need to be deposited?
The TDS deducted under Section 194Q needs to be deposited to the government’s account on or before the 7th of the following month in which the TDS is deducted. The TDS amount needs to be reported in the quarterly TDS return.
Objectives of Section 194Q
The objective of Section 194Q is to widen the tax base and increase tax compliance by bringing more transactions within the TDS net. By mandating TDS on purchases of goods, the government aims to ensure that businesses pay their taxes in a timely and efficient manner.
Impact on Businesses
The impact of Section 194Q on businesses can be significant. Businesses that regularly make purchases of goods exceeding Rs. 50 lakhs in a financial year will need to ensure that they comply with the TDS provisions of this section. This means that they will need to deduct TDS at the rate of 0.1% from the payment made to the seller and deposit it with the government within the specified timeframe.
Businesses will also need to ensure that they maintain proper records of transactions and TDS deductions to avoid any penalties or fines for non-compliance. Failure to comply with the provisions of Section 194Q can result in a penalty of up to Rs. 1,00,000.
Exemptions from Section 194Q
While Section 194Q applies to most businesses, there are certain exemptions. For example, transactions covered under Section 194-IA (TDS on payment for the transfer of certain immovable property) and Section 194-IB (TDS on payment of rent by certain individuals or HUFs) are exempt from TDS under Section 194Q.
Transactions where the seller is subject to TDS under any other provision of the Income Tax Act and tax has been deducted at source on the same are also exempt from TDS under Section 194Q.
Conclusion
Section 194Q of the Income Tax Act is a new provision that impacts businesses that purchase goods worth more than Rs. 50 lakhs in a financial year. Businesses need to ensure that they comply with the provisions of this section to avoid any penalties or fines. While this may increase the compliance burden for businesses, the introduction of this section is expected to increase tax compliance and revenue for the government.
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Frequently Asked Questions (FAQs)
Q: What is Section 194Q of the Income Tax Act?
A: Section 194Q is a new provision introduced in the Union Budget 2021 that mandates TDS on purchases of goods exceeding Rs. 50 lakhs in a financial year.
Q: Who is liable to deduct TDS under Section 194Q?
A: Buyers who are engaged in business or profession and their annual turnover or gross receipts exceed Rs. 10 crores in the previous financial year are liable to deduct TDS under Section 194Q.
Q: What is the rate of TDS under Section 194Q?
A: The rate of TDS under Section 194Q is 0.1% on the amount exceeding Rs. 50 lakhs.
Q: When does TDS under Section 194Q need to be deposited?
A: The TDS deducted under Section 194Q needs to be deposited to the government’s account on or before the 7th of the following month in which the TDS is deducted.
Q: What are the exemptions under Section 194Q?
A: Transactions covered under Section 194-IA and Section 194-IB, transactions on which TCS is applicable under other provisions of the Income Tax Act, transactions where the seller is subject to TDS under any other provision of the Income Tax Act and tax has been deducted at source on the same, and transactions where the buyer is a public sector company, a resident who is engaged in the business of generation or distribution of electricity, or any other person notified by the Central Government are exempt from TDS under Section 194Q.
Q: What is the penalty for non-compliance with Section 194Q?
A: Failure to comply with the provisions of Section 194Q can result in a penalty of up to Rs. 1,00,000.
Q: What is the objective of Section 194Q?
A: The objective of Section 194Q is to widen the tax base and increase tax compliance by bringing more transactions within the TDS net.
Q: When did Section 194Q become effective?
A: Section 194Q became effective from 1st July 2021.
