When is tax deducted on a purchase of goods?
A buyer deducts tax on a purchase of goods under section 194Q when the buyer’s turnover from business exceeded ₹10 crore in the preceding year. The rate is 0.1 percent, and it applies only to the sum paid or credited to a resident seller above ₹50 lakh in the year. The section has applied since 1 July 2021.
Which buyer deducts?
The test is the preceding year’s sales, gross receipts, or turnover from the business. A buyer at or below ₹10 crore does not deduct under this section, whether the buyer is a company or an individual. The deduction is at the earlier of credit and payment.
On what amount?
Each seller has a separate ₹50 lakh. The 0.1 percent runs on the excess over that figure, not on the whole year’s purchases from that seller. The seller’s credit is in Form 26AS. If the seller does not furnish a PAN, the deduction is at the higher of 0.1 percent and 20 percent, which in practice is 20 percent.
What is outside the section?
A service is not goods. A professional fee is on the section 194J page. Commission is on the section 194H page. A purchase on which another section already requires a deduction is not deducted again under section 194Q. A transaction in securities or commodities through a recognised stock exchange is not this deduction. Where the buyer does deduct under section 194Q, the seller does not also collect tax on that sale under the sale-of-goods collection rule.
Frequently asked questions
Four questions cover the turnover test, the ₹50 lakh, a service, and a second collection.
Does a buyer below ₹10 crore deduct?
No. The test is the buyer’s sales, gross receipts, or turnover from business in the preceding year. At or below ₹10 crore, section 194Q does not apply.
Is the rate applied to the whole bill?
No. The 0.1 percent is on the sum paid or credited above ₹50 lakh to that seller in the year. The first ₹50 lakh is not deducted under this section.
Does it apply to a service?
No. Section 194Q is a purchase of goods. A professional or technical fee is section 194J. A contract for work can be section 194C.
Does the seller also collect tax on the same sale?
No. Where the buyer deducts under section 194Q, the seller does not also collect tax on that sale under the sale-of-goods collection rule. A trade on a recognised stock exchange is not this deduction.
Sources
Tax on a purchase of goods is section 194Q of the Income-tax Act, 1961, in force from 1 July 2021. Commission is section 194H. A professional fee is section 194J.