Section 194Q of the Income Tax Act – TDS on Purchase of Goods Explained

Kunal is a businessperson who purchases  ₹70,00,000 in a year. In Section 194Q, a buyer must deduct 0.1% TDS (Tax Deducted at Source) on the amount above ₹50,00,000 in a year in case he/she is buying the commodity above ₹50,00,000 in a year.

Example for Kunal:
 

• Total purchases in the year: ₹70,00,000
   
• Threshold limit: ₹50,00,000
   
• Amount exceeding threshold: ₹70,00,000 – ₹50,00,000 = ₹20,00,000
   
• TDS to be deducted: 0.1% of ₹20,00,000 = ₹2,000

Table for Kunal’s TDS Calculation:
 

Key Points:
 

• TDS is deducted only if the total purchases exceed ₹50,00,000 in a year.
   
• The deduction is on the amount above ₹50,00,000.
   
• Kunal must deduct ₹2,000 as TDS and deposit it with the government.

This regulation makes sure to receive taxation when making big purchases.

Importance of Section 194q
 

Kunal has been a businessman with an annual purchase of goods with a value of ₹70,00,000. As his acquisitions are more than ₹50,00,000, he is supposed to deduct 0.1% TDS on the amount, which is more than ₹50,00,000. This regulation aids the government in monitoring large purchases and minimize tax evasion.

Why is Section 194Q Important?
 

• Prevents Tax Evasion: Ensures businesses pay taxes on large purchases.
   
• Better Tracking: The government can monitor high-value transactions easily.
   
• Fairness in Taxation: Big buyers (like Kunal) contribute their share of taxes.
   
• Reduces Cash Transactions: Encourages digital payments and transparency.

Example: Kunal’s TDS Deduction
 

Key Takeaways for Kunal:
 

• If purchases exceed ₹50,00,000, TDS applies.
   
• Only 0.1% TDS on the extra amount (₹20,00,000 in Kunal’s case).
   
• Kunal must deduct ₹2,000 and deposit it to the government.

This regulation ensures that business dealings are honest and also helps the government to collect its taxes as required.

Objectives of Section 194Q

Kunal is a businessman and purchases with an amount of ₹70,00,000 a year. The purchases he makes exceed ₹50,00,000, and so above that price he should deduct 0.1% TDS. The following are the major purposes of this rule in enhancing tax compliance.

Main Objectives of Section 194Q:
 

• Track Large Transactions: The government wants to monitor high-value purchases to prevent tax leaks.
   
• Ensure Tax Compliance: Businesses like Kunal’s must deduct TDS, ensuring sellers pay their taxes.
   
• Reduce Tax Evasion: By making buyers deduct TDS, the government ensures no income goes unreported.
   
• Encourage Digital Payments: Large transactions are recorded, reducing cash dealings.
   
• Simplify Tax Collection: TDS is deducted at the source, making tax recovery easier for the government.

Kunal’s TDS Dedication Under Section 194Q
 

What Kunal Learns:
 

• If his yearly purchases exceed ₹50,00,000, TDS applies.
• Only 0.1% TDS is deducted from the extra amount (₹20,00,000).
• He must deduct ₹2,000 and deposit it with the government.

The government can use this rule to collect taxation effectively and yet leave the transactions of the business open.

TDS Rate Under Section 194Q
 

Kunal has a store and this year he purchased products worth ₹75,00,000 from various suppliers. How do you know that he has to deduct TDS under Section 194Q since his total purchases exceed ₹50,00,000? That is how it goes:

Key Points About TDS Rate:
 

• Threshold Limit: ₹50,00,000 (if purchases exceed this, TDS applies)
   
• TDS Rate: 0.1% (only on amounts above ₹50,00,000)
   
• PAN Requirement: If the seller doesn't provide PAN, the TDS rate becomes 5%

Kunal's TDS Calculation:
 

What Kunal Needs to Do:
 

1. Check total purchases for the year
    
2. If above ₹50,00,000, deduct 0.1% TDS on the excess amount
    
3. For ₹75,00,000 purchase:
    
   • Subtract threshold: ₹75,00,000 - ₹50,00,000 = ₹25,00,000
   • Calculate TDS: 0.1% of ₹25,00,000 = ₹2,500
      
4. Deposit this ₹2,500 to the government
    
5. Give the TDS certificate (Form 16A) to the supplier.

Remember: In case any supplier fails to provide PAN, Kunal is to charge 5% TDS as opposed to 0.1%. This regulation aids in monitoring business dealings and the proper payment of tax.

Due Date and Compliance Requirements

Kunal has already made a deduction of TDS of rupees  ₹2,500 on his purchases in excess of ₹50,00,000. The following is what he needs to do:

• Deposit TDS by the 7th of next month (for June purchases, pay by July 7).
   
• File TDS returns quarterly using Form 26Q.
   
• Issue TDS certificate (Form 16A) to suppliers within 15 days from the return due date.
   
• Keep proper records of all transactions for 6 years.

If Kunal misses the deadline:
 

• He must pay interest (1.5% per month).
   
• May face penalties from the tax department.

This will guarantee on-time payment of taxes and documentation.

Practical Examples

Kunal operates a furniture company, and this year the business purchased wood worth ₹55,00,000. The application of Section 194Q can be seen in this way:

• First ₹50,00,000: No TDS
   
• Remaining ₹5,00,000: 0.1% TDS (₹500)
   
• Kunal pays ₹500 to the government

Another case:
 

• If Kunal buys ₹48,00,000: No TDS (below threshold)
   
• If he buys ₹60,00,000 from one supplier: TDS on ₹10,00,000 (₹1,000)

Key points:
 

• TDS only on amounts above ₹50,00,000.
   
• Calculated per seller if dealing with multiple suppliers.
   
• Must deduct at the time of payment or credit.

This demonstrates the work of the rule in actual business scenarios.

Conclusion 

The furniture business run by Kunal gives us a clear picture of Section 194Q. When he purchased materials for an amount of ₹55,00,000, he had to pay TDS only on the purchase of materials after ₹50,00,000 (Example ₹5,00,000 Rs. - just ₹500). 

The rule ensures that large transactions are monitored without making anything complicated in the case of small businesses. In case the purchase is less than 50 lakhs, there is no necessity for TDS. 

The system can assist the government in collecting taxes equally without disturbing small businessmen. These rules enable Kunal not to face penalisation and maintain a smooth operation of his business. One should always keep in mind that it is more advantageous to compute TDS correctly and make timely payments to avoid not in trouble with taxation.

FAQs

1. Who needs to deduct TDS under Section 194Q?

Any buyer whose total purchases from a seller exceed ₹50,00,000 in a financial year must deduct 0.1% TDS on the amount above ₹50,00,000.

2. What is the TDS rate under Section 194Q?

The rate is 0.1% on purchases above ₹50,00,000. If the seller does not provide a PAN, the rate becomes 5%.

3. Is TDS deducted on every purchase?

No, only when the total purchases from a single seller cross ₹50,00,000 in a year.

4. What if my total purchase is ₹49 lakhs?

No TDS is required since it is below the ₹50,00,000 threshold.

5. Do I need to deduct TDS on imports?

No, purchases from foreign suppliers are exempt from TDS under this section.

6. When should I deposit the deducted TDS?

By the 7th of the next month. For example, TDS for June purchases must be paid by July 7.

7. Do I need to issue a TDS certificate to the seller?

Yes, you must provide Form 16A to the seller within 15 days from the due date of filing TDS returns.

8. What happens if I forget to deduct TDS?

You may have to pay interest (1.5% per month) and penalties for late deduction or non-dedication.

9. Are there any exemptions under Section 194Q?

Yes, imports, personal purchases, and tax-free goods are exempt. Also, transactions below ₹50,00,000 per seller are not covered.

10. How do I file TDS returns under Section 194Q?

File quarterly returns using Form 26Q and keep records of all transactions for at least 6 years.

 

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