Clarification regarding applicability of section 194Q: CGDA Order dated 10.10.2023
Controller General of Defence Accounts
Ulan Batar Road, Palam, Delhi Cantt – 110010
All PCsDA/PCA (Fys)/CsDA
Sub: Clarification regarding applicability of section 194Q.
Ref: (i) Government of India, Ministry of Finance, Department of Revenue, Central Board of Direct Taxes Circular No. 20 of 2021 issued vide F.No. 370142/56/2021-TPL dated 25th November, 2021.
(ii) HQrs. CGDA letter No. AT/Army (Stores)/9504/CDA Matters / Misc dated 10/08/2021.
(iii) HQrs CGDA letter No.AT/IX/ 9504/IDS/Misc dated 19.01.2023.
As per para-3 of CBDT Circular No. 20 of 2021 cited at reference- 1 above, “Finance Act, 2021 inserted a new section 194Q to the Act which took effect from 1st day of July 2021. It applies to any buyer who is responsible for paying any sum to any resident seller for purchase of any goods of the value or aggregate of value exceeding fifty lakh rupees in any previous year. The buyer, at the time of credit of such sum to the account of the seller or at the time of payment, whichever earlier, is required to deduct an amount equal to 0.1% of such sum exceeding fifty lakh rupees as income tax. Buyer is defined to be person whose total sales or gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out.”
2. However, as per 5.4.2 of the ibid CBDT Circular, a person to be considered as a buyer for the purposes of section 194Q of the Act, following conditions are required to be fulfilled:-
(a) Such person shall be carrying out a business/commercial activity;
(b) The total Sales, gross receipts or turnover from such business /commercial activity shall be more than Rs 10 crore during the financial year immediately preceding the financial year in which goods are being purchased by such person.
In case of any Department of the Government which is not Carrying out any business or commercial activity the primary requirement for being considered as a ‘buyer’ will not be fulfilled. Accordingly, such an organization will not be considered as ‘buyer’ for the purposes of section 194Q of the Act and will not be liable to deduct tax on the goods so purchased by them. However, if the said department is carrying on a business/commercial activity, the provision of section 194Q of the Act shall apply subject to the fulfillment of other conditions.
3. In view of above, it is advised that prior to deducting [email protected]% under Section 194Q of the Income Tax Act, in terms of para 3 of CBDT Circular No. 20 of 2021, it may be ensured that conditions mentioned at para 5.4.2 of ibid circular are fulfilled.
4. This issues with the approval of Sr. Jt. CGDA (AT).