Section 194Q of the Income Tax Act: What You Need to Know
The Indian government recently introduced Section 194Q in the Income Tax Act, which deals with the deduction of tax at source for the sale of goods. The new provision is set to come into effect from July 1, 2021, and it is essential for taxpayers to understand the key provisions of Section 194Q.
What is Section 194Q of the Income Tax Act?
Contents
- 1 What is Section 194Q of the Income Tax Act?
Section 194Q is a new provision in the Income Tax Act that aims to ensure that taxpayers who are responsible for buying goods worth more than Rs. 50 lakhs in a financial year deduct tax at source. The provision applies to buyers who are not required to get their accounts audited under Section 44AB of the Act.
Who is covered under Section 194Q?
The provision applies to any person who buys goods worth more than Rs. 50 lakhs in a financial year. However, the provision does not apply to taxpayers who are already required to deduct tax at source under any other provision of the Income Tax Act.
In addition, taxpayers who have an annual turnover of less than Rs. 10 crores are also exempt from the provisions of Section 194Q.
How much tax is to be deducted under Section 194Q?
The buyer is required to deduct tax at the rate of 0.1% of the amount exceeding Rs. 50 lakhs. However, if the seller has already furnished their PAN, the rate of TDS shall be 0.075%. If the seller does not furnish their PAN, the TDS rate shall be 5%.
What are the consequences of non-compliance with Section 194Q?
If the buyer fails to deduct tax at source or deducts tax at a lower rate, they will be liable to pay a penalty. The penalty can be up to the amount of tax that should have been deducted under Section 194Q. In addition, interest will be charged on the tax amount that should have been deducted but was not.
Impact of Section 194Q on businesses
The introduction of Section 194Q will have a significant impact on businesses in India. The provision will increase compliance requirements for buyers of goods and will require them to ensure that they deduct the correct amount of tax at source.
This will result in additional administrative and operational costs for businesses, as they will need to keep track of the tax deducted at source and ensure that they are complying with the provisions of the Act.
However, the provision will also have a positive impact on businesses in the long run. It will help to increase transparency in the taxation system and reduce tax evasion. The provision will also help to bring more small and medium-sized businesses into the tax net, which will increase the tax revenue for the government.
Key challenges faced by businesses in complying with Section 194Q
Complying with the provisions of Section 194Q can be challenging for businesses, especially for those who are not used to deducting tax at source.
One of the key challenges is determining whether the purchase of goods exceeds Rs. 50 lakhs in a financial year. Businesses will need to maintain accurate records of their purchases and ensure that they are complying with the provisions of the Act.
In addition, businesses will need to ensure that they are deducting tax at the correct rate, which can be challenging if the seller has not provided their PAN. Businesses will also need to ensure that they are remitting the tax deducted at source to the government on time to avoid penalties and interest.
Conclusion
In conclusion, Section 194Q of the Income Tax Act is a new provision that aims to increase transparency in the taxation system and reduce tax evasion. While complying with the provisions of the Act can be challenging for businesses, it is important that they understand the key provisions to avoid penalties and interest.
The provision is a step towards a more efficient and transparent tax system in India, and businesses will need to adapt to the new compliance requirements to ensure that they are complying with the provisions of the Act.
Frequently Asked Questions -FAQs About Section 194Q
Q.1) When does Section 194Q of the Income Tax Act come into effect?
Section 194Q of the Income Tax Act came into effect from July 1, 2021.
Q.2) Who is required to deduct tax at source under Section 194Q?
Buyers who purchase goods worth more than Rs. 50 lakhs in a financial year and who are not required to get their accounts audited under Section 44AB of the Act are required to deduct tax at source under Section 194Q.
Q.3) What is the rate of TDS under Section 194Q?
The buyer is required to deduct tax at the rate of 0.1% of the amount exceeding Rs. 50 lakhs. However, if the seller has already furnished their PAN, the rate of TDS shall be 0.075%. If the seller does not furnish their PAN, the TDS rate shall be 5%.
Q.4) Are there any exemptions under Section 194Q?
Taxpayers who are already required to deduct tax at source under any other provision of the Income Tax Act and taxpayers who have an annual turnover of less than Rs. 10 crores are exempt from the provisions of Section 194Q.
Q.5) What are the consequences of non-compliance with Section 194Q?
If the buyer fails to deduct tax at source or deducts tax at a lower rate, they will be liable to pay a penalty. The penalty can be up to the amount of tax that should have been deducted under Section 194Q. In addition, interest will be charged on the tax amount that should have been deducted but was not.
Q.6) What is the objective of introducing Section 194Q?
The objective of introducing Section 194Q is to ensure that taxpayers who are responsible for buying goods worth more than Rs. 50 lakhs in a financial year deduct tax at source. This will help to increase transparency in the taxation system and reduce tax evasion.
