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It would be the first moment in the history of income tax that TDS is levied on the procurement of products. Section 194Q of the Act would engage numerous transactions encompassing the acquisition of products under this umbrella.

In the Finance Act of 2021, the government added Section 194Q to the Income Tax Act of 1961. The government’s intention in enacting this law is to create a trail of high-value sales and purchases of products. There are several additional provisions that allow for the deduction of tax at source on various transactions; however, the deduction of tax on the sale of goods has been made relevant by introducing Section 194Q into the Income Tax Act of 1961.

New Regulations

According to the new provision – 194Q of the Income Tax Act, the buyer of the goods is obliged to deduct the TDS of the seller of the goods if the products purchased by the buyer from a specific seller have an annual value of Rs.50,00,000/- or more. This indicates that if you buy items from ‘X’ and your yearly purchases exceed Rs.50,00,000/-, you must deduct TDS on purchases above the Rs.50,00,000/- limit. This will take effect on July 1, 2021.

Who is obligated to deduct TDS?

Any individual (deductor) who purchases goods from another person (deductee) and the value of those goods exceeds Rs.50,00,000/- in a calendar year. However, the following individuals are not deductors and are not obligated to deduct TDS:

  • New business — This does not apply to the year the business is founded or incorporated.
  • Turnover limit – This will not apply to individuals who had a gross turnover of less than Rs. 10 crores in the year before the year in which items are purchased.
  • Non-resident — This does NOT apply to non-resident purchasers. However, if the buyer has a Permanent Establishment (PE) in India, this may apply.

What kind of transactions would be subject to this TDS?

This TDS is levied on transactions involving the acquisition of items worth more over Rs.50 lakhs. The following transactions, however, are NOT covered by this TDS:

1. Purchase deals worth less than Rs. 50 lakhs.

2. Securities and commodity transactions are conducted through recognised stock exchanges and clearing organisations.

3. Power exchanges facilitate the trading of electricity, renewable energy certificates, and energy-saving certificates.

4. Other sections of the Income Tax Act apply to transactions on which TDS is deducted.

Deductor turnover limit

The applicable turnover limit for these TDS provisions is Rs. 10 crores. This indicates that you must have total sales or gross revenues of Rs. 10 crores or more in the year before the buying transaction. If you have interest income, capital gains income, or rental revenue in a given year, they may be considered receipts, but they are not considered “business turnover”. A “business turnover” is required for these requirements to be applicable. As a result, until your business revenue exceeds Rs. 10 crores, you are not required to deduct tax on purchases of items.

TDS transaction limit

TDS on purchases of goods is levied only when the total amount of such transactions exceeds Rs. 50 lakhs in a calendar year. TDS is to be deducted on purchases above Rs. 50 lakhs. These rules are effective on 01/07/2021; however, if your transaction limit exceeded Rs.50 lakhs before 01/07/2021, you must begin TDS on 01/07/2021, since the transaction limitations will be applicable on a yearly basis, beginning on 01/04/2021. The following factors may be taken into account while calculating the Rs.50 lakh limit.

  • The amount of GST may be deducted from the total amount of bills paid.
  • If the amount is paid in advance or before crediting the purchasing party’s accounts in books of account, TDS may be needed on the entire amount, including GST, because it is not practicable to separate GST from the number of purchases.
  • TDS must be deducted on a payment basis in the event of advance payments because TDS is applicable at the time of crediting the amount in books or payment, whichever comes first.

TDS deposit rate and dates

TDS is levied at a rate of 0.1 per cent of the transaction value of items purchased in excess of Rs. 50 lakhs. If the deductee fails to provide his or her PAN to the deductor, this rate may be as high as 5%. TDS should be deducted when the purchases are credited to the seller’s account in the seller’s books of account. This is true even if the funds are credited to the suspense account.

TDS must be deposited on or before the 7th day of the month following the month in which TDS is deducted. TDS for the month of March, on the other hand, must be submitted on or before April 30th of the next fiscal year. TDS returns have the same due dates as other TDS requirements.

Section 194Q Synopsis

Section 194’s provision shall apply only if the following conditions are met:

  • The vendor of the products must be a resident of India.
  • The buyer of products shall be construed in accordance with the definition of Buyer stated in the explanation to Section 194Q.
  • In any previous year, the amount or sum of values must have exceeded 50 lakhs.
  • TDS will be levied at a rate of 0.1% on amounts in excess of 50 lakhs.
  • The requirements of this section do not apply if the transaction is subject to TDS and TCS under any other section of the Income Tax Act of 1961.
  • If provisions under Section 194Q and Section 206C (1H) attract at the same time, the provisions under Section 194Q take precedence.

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