TDS or Tax Deducted at Source is the amount deducted while making a payment by an individual or a company.
The introduction of the Finance Act, 2021, brought some major changes to the Income Tax Law that came into effect relating to Tax Deducted at Source (TDS) or Tax Collected at Source (TCS). This is in relation to the sale-purchase of goods, pension income of eligible senior citizens, and accelerated TDS rates for non-filers.
Under the Financial Act of 2021, the government added a new provision 194Q to the Income Tax Act 1961. The government wanted to build a trail of high-value product transactions and purchases by passing this regulation.
There are a number of other laws that allow for tax deductions at source on a variety of transactions. The inclusion of Section 194Q to the Income Tax Act of 1961, however, has made the deduction of tax on the sale of goods significant.
TDS Related New Rules and Regulations
Similar to Section 206C(1H) of the IT Act, which was revised by the Finance Act, 2020, to apply TDS on sales of goods, Section 194Q of the IT Act is altered to deduct TDS on purchases of goods.
According to the new provision 194Q of the Income Tax Act, if the items purchased by the buyer from a specific seller at the time of payment or credit, whichever is sooner, have an annual value of Rs.50,00,000/- or more, the buyer of goods is required to deduct the seller’s TDS.
This means that if you buy items from a particular seller and your yearly purchases exceed Rs.50,00,000/-, you must deduct TDS on purchases in excess of Rs.50,00,000/-.
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However, in many cases TDS can not be deducted and include the following conditions:
- The buyer’s total sales/gross receipts/turnover in the previous fiscal year (“FY”) was less than Rs. 10 crores
- The buyer purchased goods totaling less than Rs. 50 lakhs (net of GST) from one such resident seller during the relevant fiscal year
- The buyer/ purchaser is required to deduct TDS under any other provisions of Chapter XVII of the IT Act.
- The seller is required to collect TCS under any of the provisions of TCS except Section 206C(1H) of the IT Act, where both Section 194Q and 206C(1H) of the IT Act apply and only the buyer is required to deduct TDS and the seller is not required to collect TCS.
Know this about the TDS collection
It should also be noted that TDS under section 194Q is triggered when the aggregate value of purchases made from one resident seller exceeds Rs.50 lakhs and the buyer is liable to deduct TDS on the value of Goods purchased above Rs.50 Lakhs only. For example, if the value of goods purchased is Rs.70 lakhs then TDS is to be deducted on Rs. 20 lakhs only.
Advancing further, TDS is to be deducted w.e.f. July 01, 2021, however, the aggregate purchases, for its applicability is to be considered from April 01, 2021, which means that for deduction of Rs. 50 lakhs purchase from the supplier is to be calculated from April 01, 2021.
As per the amendment to the provisions of section 206AA if the Seller does not provide PAN then the applicable rate of TDS under section 194Q shall be 5% instead of 0.1%.
According to the provisions of newly inserted section 206AB, in the case of sellers who have not filed their Income Tax Returns for the preceding two Assessment Years and have TDS deducted for more than Rs. 50,000/-, the rate of TDS under section 194Q shall be 5%.
In case you are confused and are in need of expert guidance regarding TDS filing, you can take the help of any reputed Income Tax Consultant to make it easy for you and assist you regarding TDS.
Who is obligated to deduct TDS?
In a calendar year, any individual or deductor who purchases goods from another individual or deductee and the value of those items exceeds Rs.50,00,000/-.
In some circumstances, however, a TDS deduction is not necessary. This comprises the following people and organizations:
- New businesses
This does not apply to the year the business is founded or incorporated.
- Turnover limit
Individuals with a gross turnover of less than Rs. 10 crores in the year prior to the year in which products were purchased are exempt.
- Non-Residents Indian Buyers
Non-resident buyers are exempt from this rule. This may apply if the buyer has a Permanent Establishment (PE) in India.
Limit on Deductor Turnover
The appropriate turnover limit for TDS purposes is Rs. 10 crores. This indicates that in the year before to the purchase transaction, you must have total sales or gross revenues of Rs. 10 crores or higher.
Interest income, capital gains income, and rental revenue are all examples of revenues in a given year, but they are not considered “business turnover”.
Only if there is a “business turnover” are these rules applicable. As a result, unless your business revenue exceeds Rs. 10 crores, you are not obligated to deduct tax on purchases.
Transaction Limit for TDS
Only when the total amount of such transactions surpasses Rs. 50 lakhs in a calendar year is TDS paid on purchases of commodities.
Even though these rules took effect on July 1, 2021, if your transaction limit was greater than Rs.50 lakhs prior to July 1, 2021, you must begin TDS on July 1, 2021, because transaction limits would be imposed on a yearly basis from April 1, 2021.
The following considerations are taken into account for determining the Rs.50 lakh limit:
- The amount of GST deducted should be subtracted from the total amount of invoices paid.
- Because it is impracticable to segregate GST from the number of purchases, TDS may be required on the full amount, including GST, if the amount is paid in advance or before crediting the purchasing party’s accounts in books of account..
- TDS must be deducted on a payment basis in the case of advance payments since TDS is due at the time of crediting the amount in books or payment, whichever comes first.
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Rates and dates of TDS deposits
TDS is taxed at a rate of 0.1 percent of the transaction value on purchases exceeding Rs. 50 lakh. This charge can exceed 5% if the deductee fails to supply the deductor with his or her PAN.
TDS should be deducted when purchases are credited to the seller’s account in the seller’s books of account. Even if the monies are credited to the account in suspense.
Every month, TDS must be deposited by the 7th of the month. TDS for the month of March, on the other hand, must be deposited by April 30th of the next fiscal year. The same deadlines apply to TDS returns as they do to other TDS rules.
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