24 Feb An Overview of TDS Provisions on Purchase of Goods | Section 194Q Explained
When purchasing goods, it was crucial to adhere to the new Section 194Q of the Income Tax Act, introduced via the Finance Act – 2021, which established fresh TDS provisions on goods’ purchase. These provisions took effect from 01/07/2021. Let’s delve into the specifics of this section.
Rules under Section 194Q:
Buyers were obligated to deduct TDS from the sellers of goods if the aggregate value of goods purchased from a specific seller exceeded Rs. 50,00,000/- annually.
This meant that if a buyer acquired goods from “XYZ” and the annual purchases surpassed Rs. 50,00,000/-, TDS had to be deducted on purchases exceeding this limit.
Who Was Obliged to Deduct TDS?
Any individual purchasing goods from another person, where the value of such goods exceeded Rs. 50,00,000/- annually. However, certain entities were exempted from being deductors:
- New businesses were exempt for the year of incorporation.
- Turnover limit exemption applied to those with a gross turnover of less than Rs. 10 crores in the preceding year.
- Non-resident buyers were exempt unless they had a Permanent Establishment (PE) in India.
Transactions Exempt from Section 194Q:
While the section applied to purchase transactions exceeding Rs. 50 lakhs, it didn’t cover:
- Purchase transactions below Rs. 50 lakhs.
- Transactions involving securities and commodities on recognized stock exchanges.
- Transactions related to electricity, renewable energy certificates, and energy-saving certificates purchased through power exchanges.
- Transactions where TDS was deductible under other provisions of the Income-tax Act.
Transaction and Turnover Limits for TDS:
For these provisions to apply, the turnover threshold was Rs. 10 crores, requiring total sales or gross receipts of Rs. 10 crores or more in the preceding year. Additionally, TDS was applicable only when the purchase transaction value exceeded Rs. Fifty lakhs annually.
Rate and Deposit Dates of TDS:
The TDS rate stood at 0.1% of the transaction value of goods purchases exceeding Rs. 50 lakhs, potentially rising to 5% if the deductee failed to furnish their PAN. Deductors were required to deposit TDS at the time of crediting purchases to the seller’s account in the books of accounts. The deadline for TDS deposit was the 7th day of the subsequent month, except for March TDS, which had to be deposited by 30th April of the next financial year.
Conclusion:
This overview clarifies the thresholds and obligations regarding TDS on purchase transactions under Section 194Q, effective from 01/07/2021. Deductors must ensure TDS deduction at the time of crediting purchases to the seller’s account.
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