194q tds rate

Understanding Section 194Q: TDS Rate on Purchase of Goods

Section 194Q of the Income Tax Act, 1961, pertains to the Tax Deducted at Source (TDS) on the purchase of goods in India. This section introduces a specific TDS obligation for buyers of goods, aimed at enhancing tax compliance and revenue collection. This guide delves into the TDS rate under Section 194Q, its applicability, and related compliance requirements.

Table of Contents

1. Introduction to Section 194Q

2. TDS Rate Under Section 194Q

   • Standard TDS Rate

   • TDS Rate for Non-Residents

3. Applicability of Section 194Q

   • Threshold Limit

   • Exemptions and Exclusions

4. Calculation of TDS Under Section 194Q

   • Calculation Formula

   • Practical Example

5. TDS Compliance Requirements

   • Deduction and Payment

   • Filing TDS Returns

   • Issuing TDS Certificates

6. Penalties for Non-Compliance

7. Recent Amendments and Updates

8. Conclusion

Introduction to Section 194Q

Section 194Q was introduced by the Finance Act, 2021, to require buyers of goods to deduct tax at source on purchases of goods from a resident seller. This measure aims to ensure that transactions are transparent and to improve tax compliance. The provision targets larger transactions and high-value purchases to bolster revenue collection.

TDS Rate Under Section 194Q

Standard TDS Rate

• Standard Rate: The TDS rate under Section 194Q is 0.1% of the purchase value of goods, if the buyer’s turnover exceeds ₹10 crore in the preceding financial year.

• Increased Rate for Non-Filers: If the buyer does not file income tax returns for the previous two years and the total amount of TDS deductible is ₹50,000 or more, the rate is increased to 5%.

TDS Rate for Non-Residents

For non-resident sellers, Section 194Q is generally not applicable. TDS on payments to non-residents is governed by other sections of the Income Tax Act, such as Section 195, and the rates depend on the Double Taxation Avoidance Agreement (DTAA) provisions between India and the seller's country.

Applicability of Section 194Q

Threshold Limit

1. Turnover Criteria: Section 194Q applies to buyers whose turnover exceeds ₹10 crore in the financial year immediately preceding the financial year in which the purchase is made.

2. Purchase Value Criteria: TDS is deductible when the purchase value of goods exceeds ₹50 lakh in a financial year.

Exemptions and Exclusions

1. Exempt Transactions: TDS under Section 194Q is not applicable to transactions where TDS is already deducted under other provisions, such as payments covered under Section 194C (contractors) or Section 194J (professional fees).

2. Exclusions: Sales of goods by non-residents or transactions covered under other tax provisions might be excluded from the scope of Section 194Q.

Calculation of TDS Under Section 194Q

Calculation Formula

The formula for calculating TDS under Section 194Q is:

TDS Amount=Purchase Value of Goods×TDS Rate\text{TDS Amount} = \text{Purchase Value of Goods} \times \text{TDS Rate}TDS Amount=Purchase Value of Goods×TDS Rate

Where:

• Purchase Value of Goods is the amount paid for the purchase of goods.

• TDS Rate is 0.1% or 5% depending on the filer status.

Practical Example

Assume a company with a turnover of ₹12 crore makes a purchase of ₹75 lakh from a seller:

1. Purchase Value: ₹75,00,000

2. TDS Rate: 0.1% (since the buyer's turnover exceeds ₹10 crore and the seller is a filer)

3. TDS Amount: ₹75,00,000 × 0.1% = ₹75,000

In this example, the TDS to be deducted on the purchase of goods is ₹75,000.

TDS Compliance Requirements

Deduction and Payment

1. Deduction: TDS must be deducted at the time of credit or payment, whichever is earlier.

2. Payment: The deducted TDS amount should be deposited with the government within 7 days from the end of the month in which the TDS was deducted.

Filing TDS Returns

1. Frequency: TDS returns must be filed quarterly.

2. Form: Form 26Q is used to report TDS on payments other than salaries, including purchases of goods.

3. Details: The return should include details of TDS deducted and deposited, along with information about the deductee.

Issuing TDS Certificates

1. Certificate: Issue a TDS certificate (Form 16A) to the seller. This certificate provides proof of tax deduction and includes details such as the amount deducted and the purchase value.

2. Timeline: The certificate must be issued within a specified period, generally by the end of the month following the end of the quarter in which TDS was deducted.

Penalties for Non-Compliance

1. Late Payment: Interest is charged on late payment of TDS. The interest rate is 1.5% per month or part of a month from the due date until the date of actual payment.

2. Late Filing: Penalties for late filing of TDS returns can range from ₹200 per day up to a maximum of the total TDS amount due.

3. Non-Issuance of TDS Certificate: Failure to issue TDS certificates can result in penalties and interest.

Recent Amendments and Updates

1. Changes in TDS Rates: Stay updated with any changes in TDS rates and provisions as announced in the annual Union Budget or finance bills.

2. Regulatory Updates: Be aware of amendments to the Income Tax Act and related compliance procedures affecting TDS on the purchase of goods.

Conclusion

Section 194Q introduces a specific TDS obligation for buyers of goods to ensure better compliance and transparency. Understanding the TDS rate, applicability, and compliance requirements is crucial for businesses to manage their tax obligations effectively. For detailed guidance on TDS and other tax matters, visit AnkitPJain.com, where our experts provide tailored support to meet your needs.