Section 194Q of Income Tax Act and its impact on TDS

The Finance Act, 2021 brought in several important amendments in the Income Tax, 1961. One such amendment was the inclusion of Section 194Q in the Act which governs Tax Deducted at Source (TDS) on purchase of goods. The Section came into effect on July 1, 2021. It has a few significant implications especially when coupled with Section 206C(1H) which governs Tax Collected at Source (TCS) on the sale of goods.

The new section is an interesting addition due to the fact that it is a move to address the shortcomings of the aforementioned Section 206C(1H) which was brought in the previous year. Due to some transactions being excluded from coming under TCS provisions, Section 194Q on TDS has been added this year.

When will TDS be deductible under Section 194Q?

According to Section 194Q, TDS will be deductible when a buyer makes a payment to a seller who is also a resident and the said payment is for the purchase of goods that are of value exceeding Rs. 50 lakhs. The said ‘purchase of goods’ refers to both capital and revenue goods. The rate of TDS is 0.1% of the said value which will increase to 5% when the seller does not have a Permanent Account Number (PAN). Another thing to note is that TDS is deductible under the section even when payment is credited to a suspense account (a section in a ledger that records entries which are uncertain leading to a need for further classification).

Who is a buyer?

The section defines who a buyer is in the explanation stating that a person who has total sales or gross receipts or turnover exceeding Rs. 10 crores in the preceding financial year will qualify as a buyer. Further, if the Central Government has expressly notified that a person cannot be a buyer or that TDS provisions would not apply, the aforesaid provisions will not apply.

When can TDS be deducted?

Now, the TDS can be deducted either at the time when the sum of money is credited to the seller or when the sum is directly paid. If the buyer does not comply with the provisions of this section, Section 40a(ia) will come into being through which expenditure up to a maximum of 30% of the value of goods will be disallowed.

Exceptions to Section 194Q

One important exception to note with regard to Section 194Q is that it won’t apply if other provisions of the Income Tax Act mandate deduction of TDS in the concerned transaction. Yet another exception is when TCS is collectable on the transaction according to the provisions of Section 206C(1H) of the Act. 

When can TCS be collected under Section 206C(1H)?

As mentioned previously, Section 206C(1H) governs TCS on sale of goods. This provision will apply on a seller who receives a consideration for sale of goods with value more than Rs. 50 lakhs during a financial year. Further, the Section defines ‘seller’ as a person who has total sale or gross receipts or turnover exceeding Rs. 10 crore during the preceding financial year (similar to the definition of a ‘buyer’ under Section 194Q).

Now, when only Section 206C(1H) existed, there was the possibility of TCS provisions not being applicable even when consideration exceeded Rs. 50 lakhs due to the fact sales or gross receipts or turnover were not over Rs. 10 crore in the preceding financial year. Such transactions did not come under the purview of either tax collection or deduction and hence, the government sought to bring them under the same. This was why Section 194Q was introduced through the Finance Act, 2021. 

Mutual exclusivity of Section 194Q and Section 206C(1H)

Therefore, now both Sections co-exist to ensure that transactions are not exempt from tax collection or deduction due to the conditions not being met. But, it is important to note that the two sections are mutually exclusive, in the sense that if one starts to apply, the other will not apply. So if TDS can be deducted under Section 194Q, TCS can not be collected under Section 206C(1H) and vice versa.

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Startup India: Objectives and Benefits of the Scheme

Priyasha Sen Gupta, Team,

Startup India is a much-needed initiative launched by Prime Minister Narendra Modi in 2015. It’s a well known fact that India is a country full of talented people, but young people don't have many opportunities to achieve their dreams and ambitions. Thus, this campaign could be a great kick-start for the youth to accomplish their goals. Prime Minister Modi declared it on Independence Day and it was launched on 16th January.

It is noteworthy here that there are eligibility criteria for a company to come under this scheme such as those concerning establishment and turnover. If the criteria are satisfied and once registration is done, a startup will be able to reap the benefits of the scheme. The aforesaid registration process is simple and can be done online by submitting the required documents.

Objectives of Startup India

It is a famed fact that youth is a very energetic and capable lot. However, this energy and enthusiasm of theirs do not usually get channelised in the proper direction. This campaign will aim to try and do precisely that. This will make sure that the youth get the required facilities from the government.

Furthermore, it is a commendable initiative that enables the youth to touch newer heights. This will provide them with the resources which will allow them to fulfill their dreams of turning into a businessman or entrepreneur. These need a start-up network that this campaign will provide. Basically, it implies that banks will provide finances to those youth for making higher employment opportunities within the country.

In other words, young people should be made to work so that the problem of unemployment can be eliminated in India. This initiative will help many startups succeed and they will finally be able to properly align their innovation and creativity making this a sign of great relief for the youth. 

The banks have been urged to support at least one Dalit and one entrepreneur, in order to maintain inclusivity as well. This is a huge improvement and will provide a career advantage for newcomers in the industry. In addition, it will also boost the national economy.

Benefits of Startup India Scheme 

Ease of Work 
The government has started the Startup India hubs wherever the incorporation, registration, grievance, handling etc., are simply handled. On the web portal, the government has set up a hassle-free registration system, so one will be able to register from any place and at any time. As per the financial condition and Bankruptcy Bill of 2015, it facilitates the quick winding-up method for startups and a new startup can take place within ninety days of the corporation.

Finance Support 
To motivate startups, the government provides financial support that includes a collection of Rs. 10,000 crores for 4 years (Rs. 2,500 per year). The state uses these funds to invest in new startups. The income tax exemption applies for the first 3 years after founding a startup. If a start-up company receives units that exceed the market value of the units, this excess is taxable for the recipient as income from other sources, under the Income Tax Act.

Government Support 
Everyone wants a government tender when it comes to high payouts and large projects. Getting government support is not easy, but under the Startup India Scheme, startups are a priority to get government support easily. The good news is that it does not require any prior knowledge.

Networking Opportunities 
Networking opportunities allow people to meet the various startup stakeholders in a specific place and at a specific time. The government does this by running two start-up tests annually, both nationally and internationally. In addition, the Startup India program also offers intellectual property awareness and awareness workshops.


Startup India is a great opportunity for companies that want to be successful in the market. This arrangement brings them many advantages and also saves their taxes. It is a well-known fact that startups play a crucial role in the economic prosperity of a country. Therefore, by encouraging such companies, the government has undoubtedly taken a positive step towards India's economic development.

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