TDS on Purchase of Goods to be effective from July 1

TDS on Purchase of Goods under Income Tax

The Finance Act of 2021 made a change to section 194-IB and added a new section 194Q that deals with TDS on rent paid by certain people or HUFs and TDS on the purchase of goods, both of which will take effect on July 1, 2021.

Section 194-IB has been amended. With effect from July 1, 2021, section 52 of the Financial Act of 2021 amended section 194-IB of the Income Tax Act, substituting the words, numbers, and letters “section 206AA, such” for the words, figures, and letters “section 206AA or section 206AB, such” in sub-section (4). The Income-tax Act, Section 194-IB, deals with the payment of rent by certain people or Hindu undivided families.

Any person, whether an individual or a Hindu undivided family (other than those referred to in the second proviso of section 194­I), who is responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, shall deduct an amount equal to 5% of such income as in sub-section (1) of the said section.

In cases where the tax is needed to be deducted under the provisions of section 206AA, the deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be, according to sub-section (4) of the said section.

Section 194-IB was amended to add section 206AB to sub-section (4) for the purposes of the said sub-section.

Section 194Q has been added to the code. The TDS On Purchase Of Goods is addressed in the new Section 194Q. TDS of 0.1 percent will be levied on purchase transactions exceeding Rs.50 Lacs in a year beginning July 1, 2021. Only the buyer with a revenue of more than Rs. 10 crore is responsible for the deduction. Except as provided in Section 206C, the tax cannot be deducted if it is deductible or recoverable under any other provision (motor vehicle, jewellery, etc) except Section 206C (1H).

TCS will not be collected if a transaction is liable to TCS under section 206C(1H), and instead TDS under section 194Q would be deducted.

Any person, being a buyer, who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for the purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, at the time of crediting such sum to the seller’s account or at the time of payment thereof by any mode, whichever is earliest, shall, at the time of crediting such sum to the seller’s account or at the time of payment thereof deduct an amount equal to 0.1 per cent. of such sum exceeding fifty lakh rupees as income-tax.

Furthermore, any sum referred to in sub-section (1) that is credited to any account in the books of account of the person liable to pay such income, whether called “suspense account” or by any other name, is deemed to be the credit of such income to the account of the payee, and the provisions of this section apply accordingly.

If any difficulty develops in carrying out the provisions of this section, the Board may provide guidelines to address the problem, with the prior permission of the Central Government.

Every guideline established by the Board under subsection (3) must be put before each House of Parliament as soon as possible after it is issued, and it must be obligatory on the income-tax authorities and the person obliged to deduct tax.

The provisions of this section do not apply to: (a) transactions on which tax is deductible under any provision of this Act; and (b) transactions on which tax is recoverable under the provisions of section 206C other than those covered by paragraph (1H) of section 206C.’

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