Section 194Q of TDS: Applicability, Rates, Calculation
Introduction
The Indian government introduced the section 194Q in the Income tax Act, 1961 in 2021 for Tax Deducted at Source (TDS). These changes were made to tax laws to make financial transactions more transparent and ensure people follow the rules. This section focuses on tax deduction at source (TDS) for payments made to resident contractors and professionals. In this article, we will break down Section 194Q and explain what it means for taxpayers.
Applicability of TDS Deduction under Section 194Q
● Turnover Threshold: The buyer's total sales, gross receipts, or turnover from the business should be more than ₹10 crore in the previous financial year.
● Transaction Amount: The buyer needs to deduct TDS if the purchase of goods from a seller exceeds ₹50 lakh in a financial year.
● Buyer’s Responsibility: The buyer is responsible for deducting the TDS when making payments to the seller. This applies only if the seller is a RESIDENT of India.
These criteria are important to determine if Section 194Q applies to your transactions, ensuring compliance with the tax law.
Rate Of TDS
The rate of Tax Deducted at Source (TDS) under Section 194Q is as follows:
● Standard Rate: The TDS rate is 0.1% of the purchase value exceeding ₹50 lakh in a financial year.
● Non-PAN/Aadhaar Cases: If the seller does not provide their PAN or Aadhaar, the TDS rate increases to 5%.
Calculation of TDS under Section 194Q
● Identify the Total Purchase Amount: Calculate the total value of goods purchased from a seller during the financial year.
● Determine the Excess Amount: Subtract ₹50 lakh from the total purchase amount. TDS is applicable only on the amount that exceeds ₹50 lakh.
● Apply the TDS Rate: Multiply the excess amount by the TDS rate of 0.1% to determine the TDS to be deducted.
Example:
● Total Purchase Amount: ₹70 lakh
● Excess Amount: ₹70 lakh - ₹50 lakh = ₹20 lakh
● TDS Calculation: ₹20 lakh × 0.1% = ₹2,000 In this example, the TDS to be deducted is ₹2,000.
Time Of Deduction Of TDS
Under Section 194Q, the TDS must be deducted at the time of payment or credit, whichever is earlier. This means that if you make a payment to a seller or credit the seller’s account for the purchase of goods, you need to deduct TDS at that point in time. The deduction should occur when the payment is made or when the amount is credited to the seller’s account, even if the payment is not yet settled. This ensures that the tax is deducted promptly and in accordance with the transaction’s timing.
TDS Deposit Due Date
The due date for depositing TDS under Section 194Q is the 7th of the month following the month in which the TDS was deducted.
For example, if the deduction month is January, the due date of payment is February 7.
However, in the case of March, the TDS can be deposited up to April 30.
TDS Return: Form 26Q
TDS returns under Section 194Q must be filed quarterly using Form 26Q. The due dates for filing are:
● July 31 for the quarter ending June 30
● October 31 for the quarter ending September 30
● January 31 for the quarter ending December 31
● May 31 for the quarter ending March 31
Exceptions
If TDS needs to be deducted under another provision of the Income-tax Act, such as Section 194O for e-commerce transactions, Section 194Q will not apply. Similarly, if a transaction is subject to Tax Collected at Source (TCS) under Section 206C(1H), only Section 194Q will apply, and not both provisions.
Is turnover limit including or excluding GST?
● When calculating the ₹50 lakh limit and the TDS amount, GST should be excluded.
● TDS is calculated based on the value of goods or services after removing GST. This confirms that the tax amount is accurately determined and considered correct.
Section 194Q Declaration Format
To,
[Name of the Buyer/Company]
[Address of the Buyer/Company]
Subject: Declaration for Tax Deduction at Source (TDS) under Section 194Q
Dear Sir/Madam,
I, [Your Name], hereby declare that I am aware of the provisions of Section 194Q of the Income Tax Act, 1961, which requires tax to be deducted at source on payments made for the purchase of goods.
I confirm that:
1. The total purchase value of goods from your company has exceeded ₹50 lakh in this financial year.
2. I am responsible for deducting TDS on payments made for these goods as per the applicable rate under Section 194Q.
Please ensure that TDS is deducted as per the provisions of the law and deposited to the government account in a timely manner.
Thank you for your cooperation.
Sincerely,
[Your Name]
[Your Designation]
[Your Company Name]
[Your Contact Information]
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