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Applicability of TDS on purchase of goods, change in scope of TCS – Declaration to customers?

Gourav Ahuja 0 Comments ,

Applicability of TDS on purchase of goods, change in scope of TCS - Declaration to customers?

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Recently a notification was issued and a new section regarding Tax deducted at source (TDS) was added in the Income Tax Act,1961 which shall be executed from 01/07/2021. In brief as per the notification by government of India 0.1% TDS has to be deducted on purchase of goods by a buyer from a person residing in India keeping in mind certain other conditions regarding total turnover and the extent of the total transactions conducted between the two parties i.e buyer and seller.

Meaning of Buyer

In the context of the aforesaid notification, the term buyer is defined as an individual whose total sales, turnover or gross receipts from the business he conducts exceeds rupees 10 crores. The turnover to be considered shall be of the financial year immediately preceding the financial year in which the transaction of purchase of goods is made.

Application of Section 194Q

As per section 194Q of the act, where the provisions of TDS as well as TCS under section 206C (1H) applies on a certain transaction, then the provisions of section 194Q shall come into play i.e it will be necessary for the buyer to withhold TDS on the vallue of purchases.

For better understanding the different scenarios are highlighted below assuming the total transaction amounts among buyer and seller exceeds rupees 50 Lac.

  • Implications when buyer has turnover of more than Rs 10 crore in the preceding financial year :
    The buyer will deduct TDS (0.1%) and the seller of the goods need not collect TCS in such case.
  • Implications if buyer has turnover of less than or equal to Rs 10 crore :

    The buyer will not deduct TDS in this case but the seller will collect TCS if his turnover exceeds Rs 10 crore otherwise not.
  • Higher TCS to be collected from non-filers of Income Tax returns.

Now along with 194Q a new section has also been introduced named 206CCA according to which a seller is responsible to collect TCS at a higher rate than usual if the buyer has not filed income tax returns for the previous two years. The rate can be twice the usual prescribed rate or 5% and also this rate is applicable based on the condition that the aggregate of TDS and TCS of such buyer is more than Rs 50000 for each of the previous two years.

Customer Declaration

Below attached is a performa that can be used in order to get the necessary details f of income tax filing done by the customer in previous years.

Download For Section 206C
Download For Section 194Q

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