Arjun (Fictional Character): Krishna, a new provision for TDS has been proposed in the Union Budget 2021-22. What is it about?

Krishna (Fictional Character): Arjuna, the new provision says that; if turnover of the buyer is greater than Rs. 10 Cr. in P.Y., and purchase value is Rs. 50 lakhs or more from a single party, then the buyer needs to deduct TDS at 0.1% of such sum exceeding Rs. 50 Lakhs. Let us discuss about it in detail.

Arjun (Fictional Character): Krishna, to whom this provision is applicable?

Krishna (Fictional Character): Arjuna, this provision is applicable to every person having turnover above Rs. 10 Cr., and purchasing goods of Rs. 50 Lakhs and above.

This TDS provision shall not be applicable to :

i. a transaction on which tax is deductible under any provision of the Act; and

ii. a transaction, on which tax is collectible under the provisions of section  206C other than transaction to which sub-section (1H) of section 206C applies.

This means, if on a transaction a TDS or tax collection at source (TCS) is required to be carried out under any other provision, then it would not be subjected to TDS under this section. There is one exception to this general rule. If on a transaction TCS is required under sub-section (1H) of section 206C as well as TDS under this section, then on that transaction only TDS under this section shall be carried out.

As it is clearly m entioned in the provision that tax is to be deducted only on purchase of goods, it shall not apply to rendering of services.

Further, Central Government is proposed to be empowered by notification in the Official Gazette to exempt a person from obligation under this section on fulfilment of conditions as may be specified in that notification.

Arjun (Fictional Character): Krishna, please explain with some practical scenarios, that how TDS under this section will be dealt with, when TCS under section 206C(1H) is also applicable on the same transaction?

Krishna (Fictional Character): Arjuna, lets study some practical cases.

Scenario 1 : “B” is the buyer of goods and “S” is the seller.

Aggregate turnover of “B” is Rs. 11 Cr. and that of “S” is Rs. 12 Cr.

“S” sold goods worth Rs. 55 Lakhs to “B”.

In such case, TDS is to be deducted by “B” @0.1% of the transaction value, and TCS u/s 106(C)(1H) shall not be applicable.

In the same case, if turnover of “B” is below Rs. 10 Cr. and turnover of “S” is above Rs. 10 Cr., then only TCS will be collected by “S” and TDS on purchase of goods will not be applicable.

Considering the same case where turnover of “S” is below Rs. 10 Cr. and turnover of “B” is above Rs. 10 Cr., then only TDS will be deducted on purchase made, and TCS will not be applicable.

Arjun (Fictional Character): Krishna, what should taxpayers learn from this?

Krishna (Fictional Character): Arjuna, now compliances will get a bit more complicated, as seller will collect TCS if his turnover exceeds Rs. 10 Cr. and buyer will deduct TDS if his turnover exceeds Rs. 10 Cr. In the supply chain, wholesaler’s task will be burdensome, as now he has to check while selling to retailers whether their turnover exceed Rs. 10 Cr. so that he will not collect TCS, and only TDS prevails there.

Author Bio

Qualification: CA in Practice
Company: R.B. Sharma and Co
Location: Aurangabad, Maharashtra, India
Member Since: 27 Jan 2018 | Total Posts: 421
1. Central Council Member of ICAI. 2. Vice-Chairman of WIRC of ICAI for the period 2015-2021. 3. Youngest Chairman of Aurangabad Branch of WIRC of ICAI in 2002. 4. Author of Popular Tax articles series based on Krishna and Arjuna conversation i.e “KARNEETI” published in Lokmat on every View Full Profile

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  1. NARASIMHAN says:

    scenario 1 : how the buyer whose t/o is below 10 cr (for eg. 1 lakh may be only his sale totally) will accept tcs deduction by seller whose t/o is above Rs.10 cr

  2. Padmakumar says:

    To clarify: – 2nd proviso to section 206C (1H) says that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.
    So if the buyer deduct TDS under the section in your narration, seller doesn’t need to collect TCS under 206C (1H).

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December 2023