The Income Tax Department has said that businesses buying shares or commodities through recognized stock or commodity exchanges for any value exceeding Rs 50 lakh will not be required to deduct TDS on the transaction. With effect from July 1, 2021, the Income Tax Department has introduced a provision related to Tax Deduction at Source (TDS) which will be applicable to businesses with a turnover of more than Rs 10 crore.
Such businesses will be required to deduct TDS of 0.1 per cent while making payments to a resident for the purchase of goods worth more than Rs 50 lakh in a financial year. However, this provision will not apply to share or commodity transactions done through stock exchanges, the Central Board of Direct Taxes (CBDT) has said.
The tax department said that it had received representations stating that there are practical difficulties in applying the provisions of Tax Deduction at Source (TDS) contained in section 194Q of the IT Act in case of transactions through certain exchanges and clearing corporations, Because in these transactions sometimes there is no one to one contract between buyers and sellers. “For removing such difficulties, it is provided that the provisions of section 194Q of the Act shall not apply in respect of transactions in securities and commodities, which are traded through recognized stock exchanges or recognized clearing is cleared and settled by the Corporation,” the CBDT said in its guidelines dated June 30.
Section 194Q relating to TDS deduction by businesses was introduced in the Budget for 2021-22 and has come into force from July 1, 2021. The CBDT has also clarified that only those entities whose turnover in the past is more than Rs 10 crore. TDS will be required to be deducted at the time of purchase of goods worth more than Rs 50 lakh in a financial year.
Buyer is defined as a person whose aggregate sales or gross receipts or turnover from business carried on by him exceeds Rs 10 crore during the financial year in which the goods are purchased immediately preceding that financial year . AMRG & Associates Senior Partner Rajat Mohan said that the transactions in goods were only captured in the GSTN system, as the IT laws never captured the transactional data relating to the purchase/sale of goods. Now with these new TDS provisions, the income tax system will also capture the transactional sales data of goods on a monthly basis.
Mohan said the new income tax portal will use this information for big data analysis, and jurisdictional tax officials can also use these numbers during assessment proceedings. “This new change will tighten the grip on the manufacturing and business communities, making it mandatory for them to indicate the correct numbers in their tax filings, which will increase tax collection in the long run,” Mohan said.
He said that CBDT has clarified that these TDS provisions are not applicable to a buyer who does not have business activity, irrespective of turnover or receipts from non-business activity. Thus, households, regardless of non-business financial transaction value, are not liable to deduct any TDS under these provisions, Mohan said.
Commenting on the guidelines, Nangia Andersen LLP said that the CBDT has clarified that since the provisions mandate the buyer to deduct tax before ‘credit’ or ‘payment’, if any of the two events occur on July 1. , occurs before 2021, then the transaction will not be subject to TDS. It has also been pointed out that the limit of Rs 50 lakh for triggering TDS will be calculated with effect from April 1, 2021.
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