Section 194Q of the Income Tax Act is added through the Finance Act of 2021 to implement the new TDS on the purchase of Goods requirements. This is now in effect as of 1/07/2021. There were some questions about the new regulations, thus the CBDT issued Circular No. 13 on June 30, 2021, to address those questions.
What new regulations exist?
According to the new Income Tax Act section 194Q, if the total annual value of the products the buyer purchases from a particular seller is Rs. 50,00,000 or more, the buyer of the goods must deduct the TDS of the seller of the goods, if you acquire any items from “X” and your annual purchases surpass Rs. 50,00,000, you must deduct TDS from your purchases. This will take effect on July 1, 2021.
Who must make TDS deductions?
Any person (deductor) who purchases items from another person (deductee) whose purchases total more over Rs. 50,000 in a single year. The following individuals, however, are NOT to be regarded as deductors and are NOT obligated to deduct TDS:
- New company – This won’t apply to the year that the company is launched or incorporated.
- Limit on revenue – This will not apply to individuals whose gross turnover in the year before to the year in which the products are purchased was less than Rs. 10 crores.
- Non-resident: Non-resident purchasers ARE NOT covered by this. However, this can be applicable if such a buyer has a Permanent Establishment (PE) in India.
Which transactions will be subject to this TDS?
This TDS is applied to purchases of items totaling more than Rs. 50 lakhs. However, this TDS DOES NOT apply to the following transactions:
- transactions for purchases costing up to 50 lakhs rupees.
- Securities and commodity transactions carried out through reputable stock exchanges and clearing companies
- The exchange of electricity, certificates for renewable energy, and certificates for energy efficiency
The threshold for applying these TDS rules is Rs. 10 crores in turnover. This indicates that in the year before to the year of the acquisition transaction, you must have total sales or gross receipts of at least Rs. 10 crores. If you get interest income, capital gains income, or rental revenue over the course of a year, they may be considered receipts but not “business turnover.” It takes a “business turnover” for these requirements to be applicable. Therefore, you are not required to deduct tax from your purchases of items unless your business’s annual revenue exceeds Rs. 10 crore.
Limit on transactions for TDS
Only when the value of such transactions exceeds Rs. is the TDS on goods purchases applicable to the purchase transaction.
Only when the value of such transactions exceeds Rs. 50 lakhs in a year is the TDS on purchases of goods applied to the transaction. On purchases worth more than Rs. 50 lakhs, TDS must be made. Although these provisions will take effect on July 1, 2021, if your transaction limit exceeded Rs. 50 lakhs prior to that date, you must start deducting taxes (TDS) immediately. This is because the transaction limits will be applied on a yearly basis, or on April 1, 2021. The following factors could be taken into account while calculating the Rs. 50 lakh limit.
Rate and TDS deposit dates
The TDS rate is 0.1% of the transaction value for purchases of products that are more than Rs 50 lakhs. If the deductee fails to give the deductor his or her PAN, this rate could increase to 5%. The TDS must be subtracted.
The TDS amount must be deposited no later than the seventh day of the month following the month in which TDS is deducted. However, the TDS for the month of March must be deposited by the 30th of April of the next fiscal year, or earlier. The same deadlines that apply to other TDS regulations also apply to TDS returns.
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