Section 194Q – Tax Deduction on The Purchase of Goods

Section 194Q of the Income Tax Act, 1961, was introduced by the Finance Act, 2021. This Act is about Tax Deducted at Source (TDS) on the purchase of goods but not the provisions relating to services. 

Applicability of Section 194Q 

Section 194Q of the ITA begins to apply on July 1, 2021. Consequently, only purchases after July 1, 2021, must be subject to TDS. However,  Beginning April 1, 2021, a threshold of Rs 50 lakh must be taken into account when making a purchase.

Applicability on the buyers in the following cases:

✅ A buyer having, in the preceding financial year, a Turnover or Gross Receipt or Sales more than Rs. 10 Crore.

✅ A buyer who has made a payment of a sum to the Resident Seller, and Any such payment has to be made only on the purchases of goods aggregating a value exceeding Rs. 50 Lacs.

Also, read; How to File TDS Return Online?

What is the rate of TDS under this provision? 

On sales exceeding Rs 50 Lacs in a financial year from a seller that the buyer has purchased goods worth more than Rs 50 Lacs, tax is to be deducted at source at the rate of 0.1%. 

Calculation of Tax Deducted at Source (TDS):

Following are the conditions on which Tax is to be Deducted at Source:

✅ When the purchase from a seller in a financial year is above Rs 50 Lacs

✅ TDS will be calculated and deducted after the deduction of Rs 50 Lacs from the total value of the purchase of goods. 

✅ As the threshold limit is Rs 50 Lacs, it is a seller-wise deduction in every Financial Year. 

Also,Learn; How TDS is Calculated?

Rules Regarding GST:

Calculation of TDS by keeping in mind the impact of GST- 

✅ Turnover shall be calculated excluding GST

✅ However, the Calculation of TDS at the rate of 0.1% shall be including GST. 

When exactly is TDS deducted?

TDS is to be deducted at the point at which the seller receives the payment or when he receives credit for it.

Thus, if you did not make an advance payment, then this TDS has to be deducted at the time of purchase. If you have made an advance payment, however, you must deduct TDS immediately.

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