Section 194Q of the Income Tax Act, 1961, mandates Tax Deducted at Source (TDS) on payments made by buyers to resident sellers for the purchase of goods exceeding ₹50 lakh in a financial year. Introduced in Budget 2021, this provision targets large-scale business transactions.
1. Applicability of Section 194Q
✅ Covered Transactions:
- Purchase of goods(raw materials, inventory, etc.) exceeding ₹50 lakh/year per seller.
- Applies to buyerswith:
- Business turnover > ₹10 crorein the preceding financial year.
❌ Exemptions:
- Imports(covered under Customs Act).
- Transactions covered under other TDS sections(e.g., 194C for contractors).
- Sales tax/GSTcomponent (TDS applies only on the base amount).
2. TDS Rates & Thresholds
| PARAMETER | DETAILS |
| Rate (PAN Provided) | 0.1% (from July 1, 2021) . |
| Rate (PAN Not Provided) | 5% (under Section 206AA) . |
| Threshold | ₹50 lakh/year per seller (aggregate purchases) . |
| Timing | Deduct at the earlier of: |
- Credit to seller’s account.
- Actual payment (whichever is earlier) . |
Example:
- Purchase Value: ₹60 lakh from a single seller (PAN provided).
- TDS (0.1%): ₹6,000 → Net Payment: ₹59,94,000.
3. Compliance Requirements
For Buyers:
- Deduct TDS: On amounts exceeding ₹50 lakh/year per seller.
- Deposit TDS: By the 7th of the next monthvia Challan 281.
- File Returns: Quarterly Form 26Q.
- Issue Certificate: Form 16Ato the seller.
For Sellers:
- Provide PANto avoid higher TDS (5%).
- Claim TDS Creditvia Form 26AS.
4. Key Exceptions
- No TDSif the seller’s annual turnover is ≤ ₹10 crore (for FY 2023-24 onwards).
- GST Invoices: TDS applies only to the taxable value(excluding GST).
5. Penalties for Non-Compliance
- Late Deduction: Interest @ 1% per month.
- Late Payment: Interest @ 5% per month.
- Non-Filing: Penalty up to ₹1 lakh.
6. Key Takeaways
🔹 0.1% TDS on purchases > ₹50 lakh/year per seller.
🔹 PAN Mandatory to avoid 5% deduction.
🔹 Buyers’ Responsibility: Track cumulative purchases per seller.
🔹 Quarterly Filing: Use Form 26Q.
