Section 194Q TDS of the Income Tax Act, ensures the collection of tax at source on major business transactions and enhance compliance and transparency within the taxation system. The target of Sec 194q of Income Tax Act, 1961 is to promote tax compliance.

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What is Section 194Q TDS of the Income Tax Act: Applicable, TDS Rate, Due Date?

Section 194Q TDS of the Income Tax Act, applies in cases where buyers have to deduct TDS from the payments made to the local seller on the buying of goods, subject to the conditions that the buying entity's total revenue in the previous financial year was more than ₹10 crore. The same would apply in respect of a seller, as long as the payment is more than ₹50 lakh in a financial year. 

This provision is distinct for transactions involving goods and will apply only when other TSD provisions do not cover the transaction.

Section 194Q TDS of the Income Tax Act: Applicability 

Section 194Q TDS of the Income Tax Act, 1961 became applicable from 1 July 2021. The Income Tax Act, 1961 section 194Q is concerned with certain transactions on the subject of purchase of goods. Below is a summary of its applicability:

Buyer’s Criteria

• Definition: A buyer denotes to someone who buys commodities from a local seller and is accountable for making payment.
• Revenue Threshold: The provision is initiated if the total sales, revenue or gross receipts exceed Rs. 10 crore in the previous financial year preceding the payment.

Seller’s Criteria:

• Threshold for Payment: If an amount paid or credited to the seller during one financial year exceeds Rs. 50 lakh, it falls under Section 194q. This is determined on aggregate basis across all transactions with that same vendor within that period of time. 

Transaction Type:

• Nature of Transaction: This section covers transactions solely dealing with supplies pf goods. Hence, it does not focus on any other types of payments nor contracts or services.

Exemption:

• Other TDS Provisions: Only in case where TDS is not already deducted from other sections such as section 194C (which is for contracts) or section 194j (which pertains to professional fees) on the same transaction, section 194q applies; otherwise, section 194q shall not be valid.

Special Cases:

• Government and Certain Entities: This part could have different rules from those that of govern it.

What is the Due Date for 194q TDS?

The deadlines for compliance under Section 194Q of the Income Tax Act, 1961 are shown below: 

When to Deduct: 

Either during a credit to the seller’s account, or when payment is made; whichever is earlier shall be the time for collecting TDS on Section 194Q.

Depositing TDS Due Date: 

The tax deducted shall be paid into the treasury within seven days from the end of that month in which the deduction was made. 

Filing of TDS Returns: 

TDS returns should be filled quarterly. The due dates for this are generally as follows:

• Quarter 1: April to June-31st July
• Quarter 2：July to September-31st October
• Quarter 3：October to December-31st January
• Quarter 4：January to March-31st May

Following these deadlines ensures timely submission to TDS thus avoiding penalties for late payment and filing.

Section 194Q TDS of the Income Tax Act: Rate of TDS  

Standard Rate:

• 0.1% of the amount exceeding ₹50 lakh in a financial year.

Non-PAN Cases at a Higher Rate:

• If PAN not quoted by the seller, at the rate of 5%.

Such rates apply to the gross payments to a seller for goods purchased, thereby ensuring compliance with payment of significant amounts of tax associated with such transactions.

Conclusion

Section 194Q TDS of the Income Tax Act, ensures the collection of tax at source on major business transactions and enhance compliance and transparency within the taxation system and widen tax bases, achieving transactions that otherwise were kept out of the direct TDS range. In such cases, consultation with a tax professional should be in order if greater specificity is desired or questions arise about applying Section 194Q to specific transactions.