Section 194Q TDS on Goods Purchase

Section 194Q mandates TDS deduction by buyers on purchases exceeding ₹50 lakhs from resident sellers. It applies from 1st July 2021 on both capital and revenue goods

Budget 2025 update

On purchase of goods, TCS u/s 206C(1H) is not applicable from 1^st April, 2025.
Due to the above amendment, on purchase of goods, the overlapping applicability of 194Q & 206C(1H) is removed from 1^st April, 2025.

Introduction & Applicability

Section 194Q was introduced by the Finance Act, 2021 and is applicable w.e.f. 1st July 2021. This section mandates the deduction of TDS on the purchase of goods exceeding a specified threshold.

Applicable to: Buyers whose turnover exceeds ₹10 crore in the preceding financial year.
Applicable on: Purchase of goods (both revenue and capital expenditure in nature) from a resident seller.
Threshold: TDS is to be deducted on the value exceeding ₹50 lakhs (aggregate for the year) in a financial year.

Rate of TDS

Standard rate: 1% on the amount exceeding ₹50 lakhs.
If seller does not furnish PAN: Rate increases to 5% only for this section*.

*Without PAN, the applicable tax rate in other cases is 20%. For Section 194Q, the TDS rate is 5% on the transaction value of goods purchased.

Non-Applicability

Does not apply in cases where:
The transaction is for service or services.
The seller is a non-resident.
The purchase is of imported goods.
TDS is already deductible under any other provision of the Act, particularly Section 194O for e commerce transactions.
TCS under Section 206C(1H) applies – Budget 2025 update has clarified that TCS under 206C(1H) removed from 1^st April, 2025, hence removing overlapping.

Timing of Deduction

TDS to be deducted at the time of credit or payment, whichever is earlier.

GST Impact on tax deduction

For the purpose of calculating the turnover threshold of ₹10 crore, GST is excluded.
To avoid cascading tax impact, TDS should be deducted only on the taxable value, excluding GST if GST component indicates separately in duly executed agreement between buyer and seller.
When TDS has been deducted on payment basis (advance payment basis) in that case TDS will also be applicable on TDS component.

Compliance Requirements

Deposit of TDS: On or before the 7th day of the next month for April to February.
For March month, the due date is 30th April.
TDS Return Filing: Through Form 26Q on quarterly basis.
The due dates for filing a TDS return are July 31, October 31, January 31 & May 31, respectively, for a quarter ending 30th June, 30th September, 31st December & 31st March.

Consequences of Non-Compliance

Non-deduction or non-deposit of TDS under section 194Q may result in disallowance of expenditure up to 30% of the transaction value under Section 40(a)(ia).

What is the disallowance for non-compliance of TDS?

Section 40(a)(ia): If any amount paid or credited to a resident seller on which TDS was supposed to be deducted but TDS has not been deducted or TDS has been deducted but not paid to the government on or before the due date of return filing then 30% of such sum shall not be allowed as deduction. The calculated income will be considered as income for that year.