New TDS Rules – TDS on Purchase of Goods

Through Finance Act – 2021, section 194Q of the Income Tax Act is inserted to bring in the new provisions of TDS on the purchase of goods. This has become effective from 01/07/2021. There were some doubts about the new rules and hence, CBDT has clarified such doubts by issuing Circular No. 13 dated 30/06/2021.

What are the new rules?

As per the new section – 194Q of the Income Tax Act, the buyer of the goods is required to deduct the TDS of the seller of the goods if the goods bought by the buyer from a particular seller are in aggregate of Rs.50,00,000/- or more in annual value. This means as a buyer of goods, if you buy any goods from ‘X’ and such annual purchases cross Rs.50,00,000/-, then you are required to deduct TDS on purchases exceeding the limit of Rs.50,00,000/-. This is applicable from 01/07/2021.

Who is required to deduct TDS?

Any person (deductor) who is buying goods from another person (deductee) and the value of such goods exceeds Rs.50,00,000/- in a year. However, the following persons are not to be considered as deductors and they are NOT required to deduct TDS:

  • New business – This will not apply to the year in which business is started or incorporated.
  • Turnover limit – This will not be applicable to persons who have a gross turnover of lesser than Rs. 10 crores in a year preceding the year in which goods are bought.
  • Non-resident – This is NOT applicable to non-resident buyers. But if such a buyer has a Permanent Establishment (PE) in India, this may be applicable.

What type of transactions will attract this TDS?

This TDS is applicable in case of transactions of purchase of goods of more than Rs.50 lakhs. However, the following transactions are NOT covered by this TDS:

  • Purchase transactions of Rs. 50 lakhs or below.
  • Transactions in securities and commodities done through recognised stock exchanges and clearing corporations
  • The transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges
  • The transactions on which TDS is deductible under other provisions of the Income tax Act

Turnover limit for deductor

The turnover limit for applicability of these TDS provisions is Rs. 10 crores. This means you must be having total sales or gross receipts of Rs. 10 crores or more in the year preceding immediately to the year of a purchase transaction. If you have interest income, capital gains income, or rental income in a year, these may constitute your receipts but they don’t constitute your ‘business turnover’. For the applicability of these provisions, what is needed is a ‘business turnover’. So, unless your business turnover crosses Rs. 10 crores, you don’t need to deduct tax on purchases of goods.

Transaction limit for TDS

The TDS on purchase of goods is applicable on the purchase transaction only when the value of such purchases crosses Rs. 50 lakhs in a year. The TDS is to be done on the amount of purchases exceeding Rs. 50 lakhs. These provisions are applicable from 01/07/2021, however, if your transaction limit has crossed Rs.50 lakhs before 01/07/2021, you need to do TDS straight from 01/07/2021, because the transaction limits will be applicable on annual basis i.e from 01/04/2021. The following points may be considered for computing the limit of Rs.50 lakhs.

  • The amount of GST may be excluded from the amount of bills paid for
  • In case, the amount is paid in advance or paid before crediting the accounts of the purchasing party in books of account, TDS may be required to be done on amount including GST since it is not possible to segregate GST from the amount of purchases
  • In case of advance payments, the TDS needs to be deducted on a payment basis, since the TDS is applicable at the time of credit of the amount in books or payment whichever is earlier

Rate and dates of TDS deposit

The rate of TDS is at 0.1% of the transaction value of goods purchases exceeding Rs. 50 lakhs. This rate maybe 5% if the deductee does not furnish his/her PAN to the deductor. The TDS should be deducted at the time of the credit of the purchases to the account of the seller in the books of account. This is applicable even if the amount is credited to the suspense account.

The amount of TDS is to be deposited on or before the 7th day of a month next to the month in which TDS is deducted. However, for the TDS of the month of March, this is to be deposited on or before 30th April of the next financial year. The due dates of TDS returns are applicable as for other TDS provisions.

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