Section 194Q of Income Tax Act: Applicability, TDS Rate,Turnover Limit

FAQ> on TDS on purchase of goods

• Who is required to deduct tax at source under section 194Q?
  ​​ The buyer, who is responsible to make payment to a resident seller, is required to deduct tax at source under
   s​ection 194Q if the following conditions are satisfied:
  a)  He is carrying on a business;
  b)  He is paying any sum to a resident person for the purchase of any goods;
  c)  Total sales, gross receipts or turnover from the business exceeds Rs. 10 crores during the financial year immediately preceding the financial year in which such goods are purchased; and
  d)  Goods are purchased for a value or aggregate of value exceeding Rs. 50 lakhs in any previous year​.
• What is the threshold limit for the deduction of tax under section 194Q?
  ​​Tax is required to be deducted from the purchase value exceeding Rs. 50 lakhs. ​​
• When is a tax required to be deducted under section 194Q?
  ​Tax is required to be deducted at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier. ​
• What is the rate of tax deduction under section 194Q?
  The tax is required to be deducted at the rate of 0.1%. This rate shall not be subject to any surcharge or Health & Education Cess.
• Whether the provision of section 194Q apply where the buyer is a non-resident?
  Tax is required to be deducted by a non-resident buyer only if the purchase of goods is effectively connected with the permanent establishment in India.
• Whether the provision of section 194Q applies where a seller is a person whose income is exempted from income tax?

  No tax is required to be deducted where goods are purchased from a seller who as a person is exempt from income tax under the Income-tax Act or any other Act passed by the Parliament.

  However, this exemption is not available if only part of the income of the seller is exempt from tax.​

• What would be the rate of TDS under section 194Q if seller does not furnish his PAN to the buyer?
  ​ As per s​ection 206AA, if the deductee does not furnish PAN, tax shall be deducted at a rate higher of the following:
  •  The rate prescribed in the relevant provisions of the act, or
  •  Rate or rates in force, or
  •  5%​

• What would be the rate of TDS under section 194Q if seller is a non-filer of the Income-tax return?
  ​ As per section 206AB, if the deductee has not furnished its return of income as per section 139(1​) and the due date has expired, tax is required to be deducted at a rate higher of the following:

  •  Twice the rate prescribed in the relevant provisions of the act, or
  •  Twice the rates in force, or
  •  5%​

• What will be the rate of TDS under section 194Q if the seller is a non-filer of income-tax return and also doesn’t furnish his PAN?
  ​In this case, the tax shall be deducted at the rates specified under section 206AA or s​ection 206AB, whichever is higher.
• How to deduct tax at source if a a transaction falls under Section 194Q as well as Section 194-O?
  ​If a transaction is covered both under Section 194-O and Section 194Q, the tax is required to be deducted under Section 194-O​ and not under Section 194Q.
• Whether the provision of section 194Q is applied where a transaction is carried through recognised stock exchanges?
  ​The provisions of Section 194Q​ shall not be applicable in relation to transactions in securities (and commodities) which are traded through recognised stock exchanges or cleared and settled by the recognised clearing corporation, including recognised stock exchanges or recognised clearing corporations located in International Financial Service Centre (IFSC).
• What is the treatment of GST and other state levies & taxes while deducting tax under section 194Q?
  ​​ (a) Where tax is deductible at the time of credit
  Tax under s​ection 194Q shall be deducted on the amount credited without including GST & other non-GST levies such as VAT, Sales Tax, Excise Duty, CST, etc. if the following conditions are satisfied:
  i.   Tax is deducted at the time of credit of the amount in the account of the seller; and
  ii.   The component of GST and non-GST levies comprised in the amount payable to the seller is indicated separately as per the terms of the agreement or contract between the buyer and the seller.

   (b) Where tax is deductible at the time of payment

  If the tax is deducted on a payment basis because the payment is earlier than the credit, the tax would be deducted on the whole amount as it is not possible to identify the payment with the GST component or non-GST levies component to be invoiced in future.​​

• What is the treatment of purchase returns while deducting tax under section 194Q?

  Where the seller has refunded the money against the purchase return, the tax deducted may be adjusted against the next purchase against the same seller.

  However, where the purchase return is replaced by the goods, no adjustment is required.​

• How to deal with a transaction which is covered both under section 194Q as well as section 206C(1H)?
  ​​If a transaction is subject to TDS under Section 194Q, the buyer shall have the first obligation to deduct the tax. If he does so, the seller will not have any obligation to collect the tax under Section 206C(1H)​.