Latest Guidelines u/s 194Q of the Income-tax Act, 1961 | SuperCA

About

Section 194Q, which was introduced in Budget 21-22 has been inserted in the Income-tax Act 1961 and will take effect from July 1, 2021. This section is related to payment of a certain sum for purchase of goods. According to this section, any person, being a buyer, is responsible for paying any sum to any resident seller for the purchase of any goods of the value or aggregate of value exceeding Rs 50 lakh in any previous year at the time of ‘credit of such sum to the account of the seller’ or ‘at the time of payment’, whichever is earlier, the buyer is required to deduct 0.1 per cent of such sum exceeding Rs 50 lakh as Income tax.

Required Turnover for deduction u/s 194Q

Buyers will be TDS-obligated if they have gross receipts/turnover exceeding INR 10 Crores in the immediately preceding financial year in which the transaction takes place and does not include non-business activities’ turnover.

Guidelines

➤ Since section 194Q, mandates buyers to deduct tax on credit of sum in the account of seller or on payment of such sum, whichever earlier, the provision of this subsection shall not apply on any sum credited or paid before 1st July 2021. If either of the two events had happened before 1st July 2021, then that transaction would not be subjected to the provisions of section 194Q of the Act.

➤  Calculation of sum for triggering TDS under section 194Q shall be computed from 1 April, 2021.

➤  If TDS u/s 194Q is made on payment to the seller because payment is earlier than credit, TDS has to be made on the whole amount.

➤  Since TDS u/s 194Q is made at the time of payment or credit whichever is earlier, tax would have been already deducted on purchase return, the following procedure will be adopted -

• Said TDS shall be adjusted against the next purchase, if the money has been refunded by the seller.

• If it is replaced by the goods of the same value then nothing shall be done as TDS on the said purchase has already been deducted.

➤ Section 194Q applies on advance payments too.

➤ If a transaction is both within the ambit of section 194O & 194Q, then tax is required to be deducted under section 194-O and not under section 194Q.

➤ If a transaction is both within the ambit of section 194-Q as well as u/s 206C(1H), the tax is required to be deducted under section 194-Q.

➤ The seller is not required to collect the tax u/s206C(1H) on the same transaction in which tax has already been deducted.

➤ In case the tax has already been collected by the seller u/s 206C(1H), before the deduction of tax under section 194-Q by the buyer on the same transaction, such transaction would not be subjected to tax deduction again by the buyer.

GST Purchase Adjustment

➤  TDS shall be deducted on the amount credited without including such GST if the seller has indicated such in his tax invoice separately. In cases where advance has been paid, then TDS shall be deducted on the whole amount as it is not possible to identify the payment with the GST component of the amount to be invoiced in the future.

Wherein amount is credited to the seller’s account, and in terms of the agreement/ contract between the buyer and seller, the GST component is indicated separately; TDS u/s 194Q to be made on the amount credited without including GST. No adjustment will be required if the purchase return is replaced by goods by the seller.

Non- Applicability of Section 194Q

➤  Section 194Q will not be applied in relation to transactions in securities and commodities carried out through recognised stock exchanges or cleared and settled by recognised clearing corporations including those located in IFSC.

➤  It will also not be applied in relation to transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges.

➤  It will not be applicable to cases where the buyer has either credited or paid the amount to the seller before July 01, 2021.

➤  Provisions of section 194Q shall not apply to a non-resident whose purchase of goods from a seller who is a resident in India & is not effectively connected with the permanent establishment of such non-resident.

➤  194Q is not applicable in the cases where the seller's income is entirely tax exempt. But, in case the seller's income is only partly exempt, 194Q will be applied. (Entities/individuals having only agricultural income or entities passed under special laws like RBI Act, ADB Act etc.)

➤  Section 194Q will not be applied in the year of incorporation of the buyer .

About

Section 194Q, which was introduced in Budget 21-22 has been inserted in the Income-tax Act 1961 and will take effect from July 1, 2021. This section is related to payment of a certain sum for purchase of goods. According to this section, any person, being a buyer, is responsible for paying any sum to any resident seller for the purchase of any goods of the value or aggregate of value exceeding Rs 50 lakh in any previous year at the time of ‘credit of such sum to the account of the seller’ or ‘at the time of payment’, whichever is earlier, the buyer is required to deduct 0.1 per cent of such sum exceeding Rs 50 lakh as Income tax.

Required Turnover for deduction u/s 194Q

Buyers will be TDS-obligated if they have gross receipts/turnover exceeding INR 10 Crores in the immediately preceding financial year in which the transaction takes place and does not include non-business activities’ turnover.

Guidelines

➤ Since section 194Q, mandates buyers to deduct tax on credit of sum in the account of seller or on payment of such sum, whichever earlier, the provision of this subsection shall not apply on any sum credited or paid before 1st July 2021. If either of the two events had happened before 1st July 2021, then that transaction would not be subjected to the provisions of section 194Q of the Act.

➤  Calculation of sum for triggering TDS under section 194Q shall be computed from 1 April, 2021.

➤  If TDS u/s 194Q is made on payment to the seller because payment is earlier than credit, TDS has to be made on the whole amount.

➤  Since TDS u/s 194Q is made at the time of payment or credit whichever is earlier, tax would have been already deducted on purchase return, the following procedure will be adopted -

• Said TDS shall be adjusted against the next purchase, if the money has been refunded by the seller.

• If it is replaced by the goods of the same value then nothing shall be done as TDS on the said purchase has already been deducted.

➤ Section 194Q applies on advance payments too.

➤ If a transaction is both within the ambit of section 194O & 194Q, then tax is required to be deducted under section 194-O and not under section 194Q.

➤ If a transaction is both within the ambit of section 194-Q as well as u/s 206C(1H), the tax is required to be deducted under section 194-Q.

➤ The seller is not required to collect the tax u/s206C(1H) on the same transaction in which tax has already been deducted.

➤ In case the tax has already been collected by the seller u/s 206C(1H), before the deduction of tax under section 194-Q by the buyer on the same transaction, such transaction would not be subjected to tax deduction again by the buyer.

GST Purchase Adjustment

➤  TDS shall be deducted on the amount credited without including such GST if the seller has indicated such in his tax invoice separately. In cases where advance has been paid, then TDS shall be deducted on the whole amount as it is not possible to identify the payment with the GST component of the amount to be invoiced in the future.

Wherein amount is credited to the seller’s account, and in terms of the agreement/ contract between the buyer and seller, the GST component is indicated separately; TDS u/s 194Q to be made on the amount credited without including GST. No adjustment will be required if the purchase return is replaced by goods by the seller.

Non- Applicability of Section 194Q

➤  Section 194Q will not be applied in relation to transactions in securities and commodities carried out through recognised stock exchanges or cleared and settled by recognised clearing corporations including those located in IFSC.

➤  It will also not be applied in relation to transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges.

➤  It will not be applicable to cases where the buyer has either credited or paid the amount to the seller before July 01, 2021.

➤  Provisions of section 194Q shall not apply to a non-resident whose purchase of goods from a seller who is a resident in India & is not effectively connected with the permanent establishment of such non-resident.

➤  194Q is not applicable in the cases where the seller's income is entirely tax exempt. But, in case the seller's income is only partly exempt, 194Q will be applied. (Entities/individuals having only agricultural income or entities passed under special laws like RBI Act, ADB Act etc.)

➤  Section 194Q will not be applied in the year of incorporation of the buyer .