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Section 194Q of Income Tax Act

A new section 194Q of Income Tax Act added by the Finance Act of 2021. Any buyer who owes any money to any resident seller for the acquisition of any items with a value or total worth above Rs. 50 lakh in any prior year is subject to it.

The buyer is obligated to withhold 0.1% of the amount over Rs. 50 lakh as income tax at the moment the seller credits the payment to their account, or sooner, whichever comes first.

What Is Section 194Q Under Income Tax Act?

The terms of Section 194q of Income Tax Act of 1961 have been modified by the Finance Act of 2020. Previously free from income tax under section 10, dividend income declared, distributed, and paid by a domestic corporation is now subject to TDS (34). This comes when the DDT (dividend distribution tax) on the amount of dividends declared by a domestic corporation was abolished. Let’s examine Section 194q to ensure greater adherence.

Section 194Q of Income Tax Act

Practical Examples Regarding Under Section 194Q Income Tax Act

On June 30, 2012, Mr. Mayank makes a purchase of commodities valued Rs. 55 lakhs and debits the amount in his accounting records. On 15.7.2021, he makes the payment for the aforementioned purchases. The same vendor sells him a second batch of products valued Rs. 40 lakhs on 1.7.2021; he credits the seller’s account in his books on 1.7.2021. In the fiscal year 2020–2021, Mr. Mayank’s business generated Rs. 11 crores in revenue.

Since the threshold purchase limit of Rs. 50 lakhs for the FY 2021–22 has already been exceeded by him through his earlier purchases of Rs. 55 lakhs booked on 30.6.2021, Mr. Mayank will be obliged to deduct TDS @ 0.1% of Rs. 4000 on purchases of Rs 40 lakhs debited by him on 1.7.2021. It should be noted that the payment of Rs. 55 lakhs made by him on July 15, 2012, for goods he debited on June 30, 2012, will not be subject to TDS deduction under Section 194Q of Income Tax Act .

Tax rates for deduction under section 194q Income Tax

Section 194Q of Income Tax Act PDFGuideline_0212_21As of July 1, 2021, tax is deductible under section 194Q. Taxes are deducted by the buyer at a rate of 0.1% of the amount paid or owing above Rs. 50 lakh.

By virtue of section 206AA, tax will be withheld at a rate of 5% if the beneficiary does not give the deductor his PAN. Any contact or document exchanged between the deductor and the deductee should include the deductee’s PAN.

You can download Section 194Q of Income Tax Act pdf and notification of Income Tax Act 194Q download 

A description of Section 194Q of the Income Tax Act of 1961

Section 194Q of the Income-tax Act, 1961, which relates to Tax Deducted at Source (TDS) on the purchase of products and not the provision of services, was added by the Finance Act of 2021.

According to section 194Q of Income Tax Act of bare act

2 In accordance with section 194Q of the basic act, tax must be withheld by a buyer whose total sales, gross receipts, or turnover from commercial activities during the fiscal year immediately preceding the fiscal year in which the items are acquired by the buyer exceed ten crore rupees.