Section 194Q: Applicability, TDS Rates & Exemption Limits
Section 194Q of the Income Tax Act deals with the Tax Deducted at the Source. When the buyer makes a purchase of goods from a seller, he is to deduct TDS at a certain specified percentage if the total payment amount exceeds the threshold limits. This section was introduced in the Income Tax Act of 1961 back in 2021 through the finance bill. It aims to facilitate the government to avoid tax evasion and keep regulatory compliance on high-value transactions. The sellers who have to get the TDS deducted from the purchase amount have to be resident Indians, as non-residents are not covered under section 194Q. This article discusses all the details on Section 194Q and the applicability and eligibility for buyers.
Eligibility Criteria under Section 194Q
A buyer has to follow the below-mentioned eligibility criteria
- They are liable to make payment of a sum to the resident seller
- Turnover or gross receipts or sales in the immediate preceding financial year have to be more than Rs 50 lakhs
- TDS has to be deducted on the purchase of goods of the value exceeding Rs 50 Lakhs
For example, a buyer has turnover Rs 10 Cr in an FY, then they have to deduct TDS from their resident seller on the purchase of goods above Rs 50 lakhs.
TDS Rates
On the transaction amount exceeding Rs 50 lakhs, the TDS is to be deducted at the rate of 0.1% from the resident seller. The TDS rates apply to buyers having an annual turnover of more than Rs 10 Cr in a financial year.
For example, if a buyer has purchased goods worth Rs 60 lakhs from a seller, then they have to deduct TDS on the remaining amount after Rs 50 lakhs. They will deduct the TDS on the remaining Rs 10 lakhs as there is an exemption on the first Rs 50 lakhs. In this case, the total TDS deducted would be 0.1% of Rs 10 lakhs Rs 1000.
Compliance Rules
In cases when sellers fail to provide PAN details to the buyer, the TDS would be deducted at the rate of 5% instead of 0.1%.
The tax has to be deducted at the source at the time a buyer is crediting the payment to the seller’s account or during the payment, whichever is earlier.
The rules of section 194Q apply to only resident sellers; no provisions for non-resident sellers. And in case of non-payment of taxes, a buyer could be disallowed from claiming up to 30% of the transaction value as expenses, resulting in increased taxable income.
This is applicable to both revenue goods (goods for sale) and capital goods, like goods acquired for long-term use like machinery.
Section 194Q vs 206C
Under section 194Q, the buyer is to deduct TDS at the rate of 0.1% similarly, whereas under section 206C, a seller is to collect TCS from the buyer at the rate of 0.1% or varied rates based on the supply of goods.
TCS under section 206C(1H) will be ineffective from the financial year 2025-26 on the purchase of goods. Therefore, the overlapping applicability of sections 194Q and 206C is removed.
| Criteria | Section 194Q (TDS) | Section 206C(1H) TCS |
| Liable party | Buyer | Seller |
| Turnover Threshold | Buyer’s turnover more than Rs 10 Cr | The seller’s turnover is more than Rs 10 Cr |
| Transaction threshold | >Rs 50 lakhs | >Rs 50 lakhs |
| Rate | 0.1% | 0.1% |
| Priority | TDS takes precedence | Applied only if TDS is not paid |
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