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New TDS Provisions

New TDS Provisions introduces w.e.f 1st July 2021

New Section 194Q – Deduction of tax at source on payment of a certain sum for the purchase of goods, was proposed to be inserted in Budget 2021.

The same has been notified to be inserted w.e.f 1st July 2021 vide Notification No. 71/2021 dated 08/06/2021. The provision is explained in the following points:

I. Purpose:

I. The provisions of 194Q are similar to Section 206C(1H) which was introduced last year for the introduction of TCS on “Sale of Goods”.

ii. The purpose of this provision is to deduct tax at source on purchase of goods.

II. Who is liable?

I. The buyer/purchaser whose total sales/gross receipts/turnover exceeded Rs. 10 Crores in the preceding financial year is liable to deduct the TDS.

In other words, buyers whose turnover exceeded Rs. 10 Crore in Financial Year 2020-2021 are liable to deduct TDS on purchase of goods w.e.f 1.07.2021.

ii. TDS obligation arises at the time of payment or credit whichever is earlier as done similarly in the case of other TDS sections.

Related Topic:
Applicability Of Section 194Q

III. When to deduct TDS under section 194Q?

I. TDS is to be deducted by the buyer on payment made to the resident (by crediting seller’s account or any other mode, whichever is earlier) on purchase of goods of value or aggregate value exceeding Rs. 50 Lakhs.

If the value of purchases made from a seller (resident) exceeds Rs. 50 Lakhs, the TDS is to be deducted by the buyer.

ii. The TDS is to be deducted on the amount over and above Rs. 50 lakhs. For example, if the purchase is of Rs. 73 lakhs the TDS is to be deducted on Rs. 23 Lakhs only.

iii. The deduction of Rs. 50 Lakhs is on total purchases made in a financial year from each supplier. It is one-time exclusion available for each financial year i.e. the basic threshold which is available each year.

iv. TDS is to be deducted w.e.f 1.07.2021 but the purchase for its applicability is to be considered from 01.04.2021 which means that for deduction of 50 lakhs the purchase from the supplier is to be calculated from 1st April 2021.

v. TDS is to be deducted even in case of advance payments.

Related Topic:
TDS Provisions under Income Tax Act, 1961 for FY 2019-20

IV. Rate at which TDS is to be deducted?

I. The TDS is to be deducted @ 0.1% of transaction value exceeding Rs. 50 Lakhs in any financial year.

V. Applicability:

I. On one transaction either 194Q will apply or 206C(1H) will apply. Where both sections become applicable 194Q will prevail i.e., only the buyer will deduct TDS and the seller will not be liable to collect TCS.

ii. No requirement to deduct TDS if the same is deductible under any other provision of Income Tax Act or collectible
under the provision of section 206C (excluding subsection 1H).

Related Topic:
Amended TDS chart for 14-5-2020 to 31-3-2021

VI. Higher rate of TDS

I. TDS @ 5% if PAN not provided to deductor

  • If the seller does not provide PAN to the buyer, then TDS will be deducted @5% instead of 0.1%
  • This is made applicable vide section 206AA of Income Tax Act, 1961, Requirement to furnish Permanent Account Number, which provides that in case the PAN is not provided by deductee to deductor the TDS is to be deducted at a higher rate of the following:

a) at the rate specified in the relevant provision of this Act; or
b)at the rate or rates in force; or
c)at the rate of five percent.

ii. TDS @5% in the case of non-filers of income tax returns.

Related Topic:
TDS on Clearing & Forwarding Agents Payment

VII. TDS for Non – filers of return

  • Section 206AB of Income Tax Act, 1961, Special provision for deduction of tax at source for nonfilers of income-tax return, provides that in case of specified person the tax shall be deducted at a higher rate of the following:

a) at twice the rate specified in the relevant provision of the Act; or
b) at twice the rate or rates in force; or
c) at the rate of five percent.

  • Specified person refers to the person who has not filed return of income till due date as per Section 139(1) of Income Tax Act for both of the 2 preceding previous years immediately prior to the previous year in which tax is to be deducted at source, and the TDS or TCS in his case in each of these previous years is 50,000/- or more.

Related Topic:
TCS under section 206C(1H) of income tax Act

Thus, basically, 2 conditions are to be satisfied for TDS under this provision:-

  • The person to whom the amount is payable has not filed returns for the last 2 years; and
  • In each of those 2 years, in his case as per his form, 26AS TDS/TCS was more than Rs. 50,000/-
  • If Sections 206AA and 206AB both are applicable to a specified person then the tax shall be deducted at higher of the two rates provided in section 206AB and in section 206AA.

Related Topic:
Latest TDS/TCS Related Amendments

Read & Download the full copy in pdf:

New TDS Provisions



Profile photo of CA Ranjan Mehta CA Ranjan Mehta

CA Ranjan Mehta is a Fellow Chartered Accountant of Institute of Chartered Accountants of India and currently proprietor of M/s Ranjan Mehta & Associates. His area of specialization includes Indirect taxes specially GST, Excise, VAT and Service Tax. He is a faculty for GST. He has presented more than 100 papers on GST at various levels of ICAI, trade bodies, corporate seminars.

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