/ TDS

TDS u/s 194Q on payments made to Kachha Arahitia

TDS

Tax Deducted at Source under section 194Q on payments made to Kachha Arahitia

Meaning of Kachha Arahitia

  • A kachha arahtia enters into a privity contract. in order for his constituent and the third party to be held responsible for one another, moreover that A kachha arhatia acts only as an agent of his constituent and never acts as a principal.
  • On the other hand, Pacca Arhtia makes himself answerable under the contract to both his constituents and the third party. A pacca arhatia, on the other hand, is entitled to substitute his own goods towards the contract made for the constituent and buy the constituent’s goods on his personal account & so kachha arahtia acts as a principal as regards his constituent.

Tax Deducted at Source u/s 194Q on payments made to Kachha Arahitia

  • Kachha Arahitia are involved in selling crops on behalf of farmers. Kachha Arahitia are agents for an unnamed principal. The Kachha Arahitia remuneration consists solely of commission & Kachha Arahitia is not interested in P&L made by his constituent. The Kachha Arahitia does not have any dominion over the goods.
  • Tax Deducted at Source under section 194Q is deducted by the purchasers from Kachha Arahitias. Buyer in such cases is treating kachha Arahitias as a seller so covering transaction under section 194Q for the purposes of Tax Deducted at Source. Sale transaction by the Kachha Arahitia is not part of his business receipts/ turnover.
  • The Centralized Processing Centreof the Income Tax department (CPC) while processing the returns of Kachha Arahitia raises the objection that the sales/ turnover is not declared in the gross receipts.
  • Central Board of Direct Taxes in its circular: No 452 (1986) had clarified in Para 4 of circular that so far as Kachha Arahitias are concerned the turnover does not include the sales effected on behalf of principals & only commission (gross) has to be considered for the purpose of Income tax section 44AB.
  • So some clarification is required on this issue from the Central Board of Direct Taxes , on whether Tax Deducted at Source required to be deducted on the transaction of sale via Kachha Arahitias.

Summary of Section 194Q – TDS on Purchase of Goods 

Section 194Q – TDS on Purchase of Goods

Applicability

  • Who? Buyer with turnover > INR 10 crore in the preceding FY, and the buyer is responsible for deduction, deposit, return filing, and issuing certificates.
  • Transaction Type: Purchase of goods from a resident seller.
  • Threshold: TDS applies when aggregate purchases exceed INR 50 lakh per seller in a financial year.

Rate of TDS 

  • 0.1% on the amount exceeding INR 50 lakh.
  • 5% if seller does not furnish PAN (Sec 206AA).

Time of Deduction :

At the earlier of credit or payment, including advance payments.

Effective Date :

Applicable on purchases on or after 1 July 2021.

Key Exclusions

  • Non-resident sellers.
  • Transactions already covered under other TDS provisions.
  • Services, imports, electricity, and similar items.

Deposit & Reporting

  • Deposit: By 7th of next month.
  • Quarterly Return: Form 26Q.
  • Credit: Reflected in seller’s Form 26AS.
  • TDS Certificate: Form 16A.

CBDT Clarification

  • Section 194Q overrides Section 206C(1H).
  • If 194Q applies → TCS under 206C(1H) NOT applicable.

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