Section 194Q - Tax Deduction at Source On Buying Goods

What is Section 194Q of the Income Tax Act?

The Government of India introduced section 194Q of the Income Tax Act, 1961 in July 2021. This provision provides for Tax Deduction at Source (TDS) on the purchase of goods exceeding ₹50 lakhs in a previous year.

NOTE:

Section 194Q does not apply to purchases from non-resident sellers.

This section does not cover the provision for TDS on services.

Who Deducts TDS under Section 194Q?

Under Section 194Q of the Income Tax Act, 1961, the responsibility for deducting Tax Deducted at Source (TDS) falls on the buyer making the purchase of goods, not the seller.

Conditions for Deduction of TDS:

Turnover Threshold: The buyer's total sales, gross receipts, or turnover from business in the previous financial year must exceed ₹10 crores.

Purchase Threshold: The purchase of goods from a resident seller within the same financial year must exceed ₹50 lakhs.

Nature of Goods: The TDS provision applies only to the purchase of specified goods as notified by the government. Currently, this includes items like iron and steel products, cement, coal, etc.

NOTE: If the seller is subject to Tax Collection at Source (TCS) under section 206C(1H) for the same goods, then the buyer's TDS liability under section 194Q takes precedence. In this case, the seller does not need to collect TCS.

In Summary

Section 194Q of the Income Tax Act introduces a mechanism for Tax Deduction at Source (TDS) on purchases above ₹50 lakhs, placing the responsibility on the buyer. The provision aims to enhance tax compliance and transparency in high-value transactions. This impacts both buyers and sellers with revised TDS rates and consequences for non-compliance.

FAQ's

What is Section 194Q of TDS?

Section 194Q of the Income Tax Act, 1961, introduced in July 2021, mandates the deduction of Tax Deducted at Source (TDS) on purchases of goods exceeding ₹50 lakhs from resident sellers.

What is section 194H?

Section 194H of the Income Tax Act, 1961 deals with Tax Deducted at Source (TDS) on commission and brokerage payments. It basically requires certain entities to deduct Tax at source before making payments exceeding a certain threshold for commission or brokerage services rendered by residents.

Is 194Q applicable on water?

The applicability of Section 194Q of TDS on water depends on two factors:

The nature of the transaction:

Section 194Q applies to the purchase of goods, not services.
So, if you are purchasing water as a commodity (e.g., bulk purchase for industrial use), then 194Q could be applicable.
However, if you are paying for water supply as a service (e.g., residential water bill), then it would not fall under 194Q.

The buyer's turnover: Even if it's a goods purchase, 194Q only applies to buyers whose total sales, gross receipts, or turnover from business in the previous financial year exceeded ₹10 crore.

What is the difference between 194Q and 206C?

The main differences between Section 194Q and Section 206C(1H) of the Income Tax Act lie in who deducts or collects the Tax and when it is deducted/collected:

Feature	Section 194Q	Section 206C(1H)
Who deducts/collects?	Buyer (TDS)	Seller (TCS)
When?	Credit/payment of the seller	Sale of goods
Applies to	All goods (revenue & capital) > ₹50 lakhs	Specific goods > ₹50 lakhs
Buyer/Seller turnover	Buyer > ₹10 crore	Seller > ₹10 crore
Rate	0.1% (or higher if no PAN)	0.1% (or higher if no PAN)
Exceptions	Non-resident sellers, certain govt. agencies	Specific categories of goods (e.g., agricultural produce)