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TDS on Sale of Goods: Applicability and Compliance

Vikash -

Understanding TDS on the sale of goods is crucial for small and micro-sized businesses in India. With the introduction of Section 194Q of the Income Tax Act, 1961, buyers are now required to deduct tax at source (TDS) on the purchase of goods under specific conditions. This article delves into the details of TDS on the sale of goods, its applicability, compliance requirements, and practical examples to help you navigate this provision effectively.

What is Section 194Q?

Section 194Q mandates that any buyer whose total sales, gross receipts, or turnover exceed ₹10 crore in the preceding financial year must deduct TDS on the sale of goods at the rate of 0.1% on purchases exceeding ₹50 lakh from a resident seller in a financial year. This provision came into effect from July 1, 2021, aiming to widen the tax base and ensure transparency in high-value transactions.

Applicability of Section 194Q

Section 194Q applies under the following conditions:

  • Buyer’s Turnover: The buyer's total sales, gross receipts, or turnover in the preceding financial year must exceed ₹10 crore.
  • Purchase Amount: The aggregate value of purchases from a resident seller must exceed ₹50 lakh in a financial year.
  • Resident Seller: The provision applies only to purchases from resident sellers; transactions with non-resident sellers are not covered.
  • Exclusion of GST: The threshold limit of ₹50 lakh is exclusive of Goods and Services Tax (GST).

TDS Rate Under Section 194Q

The TDS rate under Section 194Q includes:

  • Standard Rate: The TDS rate is 0.1% on the purchase amount exceeding ₹50 lakh.
  • Non-Furnishing of PAN: If the seller fails to provide their Permanent Account Number (PAN), the TDS rate increases to 5% under Section 206AA of the Income Tax Act.

TDS on Sale of Goods Under GST

It's important to note that TDS on the sale of goods under GST is a separate provision. GST is applicable on the sale of goods and is collected by the seller, whereas TDS on the sale of goods under Section 194Q is deducted by the buyer on purchases exceeding the specified threshold. 

Both provisions operate independently and are applicable under their respective circumstances.

Why There Is No TDS on Sale of Goods

The absence of TDS on the sale of goods is primarily due to the nature of the transaction. In a sale, the seller receives payment upfront or as per the agreed terms, and the buyer does not have an obligation to deduct tax at source. 

However, in the case of purchases under Section 194Q, the buyer is responsible for deducting TDS on the sale of goods to ensure tax compliance.

Key Highlights of Section 194Q

The key highlights of Section 194Q are:

  • Threshold Limit: TDS is applicable only on the purchase amount exceeding ₹50 lakh in a financial year.
  • Seller-Wise Limit: The ₹50 lakh limit is calculated separately for each seller; purchases from multiple sellers are considered independently.
  • Timing of Deduction: TDS should be deducted at the time of credit or payment, whichever is earlier.
  • Deposit of TDS: The deducted TDS must be deposited with the government by the 7th day of the succeeding month.

TDS on Sale of Goods: Practical Examples

Example 1:

  • Scenario: A buyer purchases goods worth ₹60 lakh from a single seller in a financial year.
  • Calculation: TDS is applicable on ₹10 lakh (₹60 lakh - ₹50 lakh) at the rate of 0.1%, amounting to ₹1,000.

Example 2:

  • Scenario: A buyer purchases goods worth ₹40 lakh from Seller A and ₹30 lakh from Seller B in a financial year.
  • Calculation: Since the purchase from each seller is below ₹50 lakh, no TDS is applicable.

Compliance Requirements

To ensure compliance with Section 194Q, businesses must:

  • Maintain Records: Keep detailed records of all purchases and payments to sellers.
  • Obtain PAN: Ensure that sellers provide their PAN to avoid higher TDS rates.
  • File Returns: File TDS returns quarterly and issue TDS certificates to sellers.
  • Timely Payment: Deposit the deducted TDS with the government within the stipulated time frame.

Penalties for Non-Compliance

Failure to comply with Section 194Q can result in:

  • Disallowance of Expenses: 30% of the transaction value may be disallowed as an expense under Section 40(a)(ia) of the Income Tax Act.
  • Interest and Penalties: Interest under Section 201(1A) and penalties under Section 271H may be levied for delayed payment or non-deduction of TDS.

How GimBooks Can Help With TDS on Sale of Goods Compliance

Managing TDS on the sale of goods and ensuring compliance with Section 194Q can be a challenge, especially for small and micro-sized businesses. That’s where GimBooks comes in to simplify the process.

  • Easy Invoicing and Record Keeping: With GimBooks, you can easily generate GST-compliant invoices and maintain a detailed record of all your purchases and payments to suppliers. 

It helps you track when your purchases from a particular seller cross the ₹50 lakh threshold, making it simple to know when TDS deduction on the sale of goods becomes applicable.

  • PAN Management: GimBooks helps you collect and store the PAN details of your suppliers securely. It ensures that the correct 194Q TDS rate is applied and prevents you from falling into the trap of a higher 5% TDS rate due to missing PAN details.
  • Automatic TDS Calculation: The platform automates the calculation of TDS on the sale of goods under Section 194Q. It calculates the correct amount of TDS to deduct based on your purchases and helps you stay compliant without manual errors.
  • TDS Filing and Return Preparation Filing quarterly TDS returns can be complicated. GimBooks simplifies this by preparing TDS returns for you, ready to file. It also helps generate TDS certificates, making it easy to issue them to your sellers.
  • Real-Time Reports and Alerts: Get real-time reports showing your total purchases and when the 194Q limit is crossed for any seller. GimBooks can also send you alerts, so you never miss a deadline for TDS deposit or return filing.

By using GimBooks, small and micro-sized businesses can manage the complexities of TDS on the sale of goods effortlessly, stay compliant with Section 194Q of the Income Tax Act, and focus on growing their business without worrying about tax-related errors.

Conclusion

Understanding TDS on the sale of goods under Section 194Q is essential for small and micro-sized businesses to ensure tax compliance and avoid penalties. By adhering to the provisions of this section, businesses can contribute to the nation's tax system while maintaining smooth operations. 

Always consult with a tax professional to stay updated on any amendments and ensure accurate compliance.

To know more, explore GimBook’s professional blog section!

Suggested read - TDS Rate Chart Changes 2025: Updated Rates Explained

FAQs

1. What is TDS on the sale of goods?

TDS on sale of goods is a tax deducted at source by the buyer when purchasing goods worth over ₹50 lakh from a resident seller in a financial year, as per Section 194Q of the Income Tax Act.

2. Is TDS applicable to the sale of goods under GST?

No, TDS on sale of goods under GST and Section 194Q TDS are separate provisions. The seller collects GST, while TDS on the sale of goods is deducted by the buyer under specific conditions.

3. Why is there no TDS on the sale of goods in normal transactions

Normally, there is no TDS on the sale of goods because tax deduction at source is not mandated for sales. Section 194Q applies only to high-value purchases by large buyers to track transactions and increase tax compliance.

4. What is the 194Q TDS rate?

The 194Q TDS rate is 0.1% of the purchase value exceeding ₹50 lakh from a resident seller in a financial year. If the seller doesn’t provide a PAN, the rate increases to 5%.

5. Who should deduct TDS under Section 194Q

The buyer is responsible for the TDS deduction on the sale of goods under Section 194Q applicability, provided their turnover exceeds ₹10 crore in the previous financial year and purchases from a resident seller exceed ₹50 lakh.