TDS on Purchase of Goods

Important provisions relating to TDS on purchase of goods and Higher TDS rate for Non-filers are effective from 1st July, 2021. Followings are the new inserted provisions:

(A)  TDS on purchase of Goods: –

The Finance Act, 2021 has introduced new section 194Q which shall be applicable from 01 July 2021. This section requires buyer of goods to deduct TDS on purchase of goods.

As per provisions of section 194Q of the Income Tax Act, TDS is deductible if-

1. The person, being buyer whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year
2. The buyer is responsible for making payment of a sum to the resident seller for the purchase of goods,
3. Such payment is to be done of the value/ aggregate of the value exceeding       Rs. 50.00 Lacs to the seller in a financial year.

That is to say, if purchase value exceeds Rs. 50.00 Lacs, TDS has to be deducted.

TDS shall be deducted

At the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent of such sum exceeding fifty lakh rupees.

Example, if seller have already issued invoice of worth Rs. 40.00 Lacs, and again issues invoice of Rs 20.00 Lacs, for the sale of goods. The buyer shall deduct TDS and deposit the same to the government on an amount of Rs 10.00 Lacs i.e (40+20~50) *0.1% which is Rs. 1000.

Non applicability of above provisions-

The provisions of this section shall not apply to a transaction on which—

(a)  tax is deductible under any of the provisions of this Act; and

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

 (B) Higher Rate of TDS for Non-filers: –

A new provision introduced in the Finance Act, 2021, regarding the deduction of TDS at higher rates on the non-filers of the income tax return under section 206AB of the Income Tax Act, 1961.

We are having the section 206AA in the Income Tax Act, which was implemented for ensuring the obtaining and furnishing of PAN by various person. There is also need to have a similar provision to ensure the filing of return of income by the person who have suffered a reasonable amount of TDS/TCS. Therefore, a section 206AB is introduced in the TDS provision, thus, at the time of deducting the TDS, a consideration to the provisions of Section 206AB by the deductor of TDS are mandatory. Here, we have listed the provisions as follows which shall be applicable from 01 July 2021:

The higher TDS rates are applicable on the deductees:

1. Who has not filed the returns of income for both of the two assessment years which are immediately before the previous year in which tax is required to be deducted,
2. The time limit for filing tax return under section 139(1) of the Act has expired for both these assessment years, and
3. The amount of TDS in each of two assessment yearsis Rs. 50,000 or more.

All the three conditions to be satisfied cumulative for the deduction of TDS at higher rates.

The TDS rates shall be higher of the following:

1. Twice the rate specified in the relevant provision of the Act; or
2. Twice the rate or rates in force; or
3. The rate of five per cent

The provisions of deduction of TDS at higher rate shall not be applicable on the following sections:

1. Section 192 – TDS on Salary
2. Section 194A – TDS on Premature withdrawal of EPF.
3. Section 194B – TDS on winnings from lottery
4. Section 194BB – TDS on winnings from horse races
5. Section 194LBC – TDS by securitization trust
6. Section 194N – TDS on cash withdrawal
7. Non-resident who does not have a permanent establishment in India.

Illustrative Flow Chart and Draft Declaration formats attached herewith for your ready reference.