194Q In Income Tax - TDS Will Be Applicable On Above Rs. 50 Lakh Buyer-Seller Transaction
Applicability Of 194Q In India
The Central Board of Direct Taxes ( CBDT) has issued a new Section 194Q under The Income Tax Act, 1961. effective from 1st July 2021, the buyer to deduct TDS on the purchase of goods from the resident seller under The Finance Act, 2021. It will be effective on any buyers who are responsible for paying An amount to resident sellers for the purchase of any goods of value exceeding or equivalent to fifty lakh rupees in any previous year. The buyer during crediting such amount to the account of the seller, or at the time of payment, whichever is earlier, is to deduct an amount equal to 0.10% as income tax when the sum of the amount is more than fifty lakh rupees.
Guidelines Of 194Q Income Tax Act
A buyer whose total sales or gross receipts or turnover from the business carried on by him exceeds Rs 10 crores during the fiscal year, immediately preceding the financial year in which the goods have been purchase. The person who is not considered as the buyer for this new section, Central Government has authorized them to specify by notification in the Official Gazette.
The Central Board of Direct Tax(CBDT) has clarified the various representations for issuing guidelines to remove certain difficulties. In exercise of power containing under sub-section (3) of Section 194Q in Income Tax Act, the Board, with the approval of the Central Government, hereby issuing the following guidelines. CBDT guidelines tried to remove difficulties in implementing the provisions of Section 194-0 and sub-Section (I H) of Section 206C of the Act using power contained in sub-section (4) of section 194-0 the Act and sub-section (II) of section 206C of the Act.
Difficulties In Application Of Section 194Q
There are practical difficulties in implementing the provisions of Tax Deduction at Source (TDS) contained in section 194Q of Income Tax Act in the case of certain exchanges and clearing corporations. Sometimes in these transactions, there is no one-to-one contract between the buyers and the sellers. In order to remove such difficulties, it is provided that the provisions of Section 194Q of the Act shall not be applicable in relation to:
Transactions in securities and commodities that are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation, including recognized stock exchanges or recognized clearing corporation located in International Financial Service Centre;
Transactions in electricity, renewable energy certificates, and energy-saving certificates traded through power exchanges registered following Regulation 21 of the CERC.
Calculation Of 194Q For The Financial Year 2021-22
Section 194Q of the Income Tax Act is acknowledged from 1st July 2021. CBDT has provided detailed instructions on how the threshold of Rs 50 lakh, specified under the new Act is to be calculated, and on what terms the tax is required to be deducted in respect of the advance TDS paid before 1st July 2021 and the sum credited afterward.
Since Section 194Q TDS Act mandates the buyer to deduct tax on the credit of sum in the account of the seller or on payment of such amount, whichever earlier, the provision of this subsection shall not apply on any amount credited or paid before 1st July 2021. In case either of the two events had happened before 1st July 2021, that transaction will not fall under the provisions of section 194Q of the Act.
Since the threshold of Rs. 50 lakh is in respect to the previous year, calculation of TDS under section 194Q will be effective from 1st April 2021. If a buyer has already paid the seller an amount of Rs 50 lakh or more before 30th June 2021. All TDS under section 194Q will be applied on credits or payments during the previous year, or after 1st July 2021 to such seller.
Mr Sujit Bala is a founder & Director of Tax Seva Kendra.in. He has more than 10 years of experience in the field of Accounts, Taxation and Company law matters.