TDS on Purchase of Goods: Confusion & Clarification

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TDS on Purchase of Goods: Confusion & Clarification

 

 

The net of Tax Deduction at Source (TDS) has widened drastically after its introduction on purchase of all goods from 1st July 2021. Now, all sellers with turnover exceeding Rs. 10 Cr in the preceding year are required to do TDS @ 0.10% on purchase from the buyer on an amount exceeding Rs. 50 Lakh. It must be carefully noted that the new TDS provision is introduced without scrapping the existing TCS provision u/s 206C (1H) which requires collection of tax at source at the time of “Receipt of Consideration”.

There are still a lot of confusions and ambiguities with regard to this TDS provision which is affecting all the purchase transactions. CBDT has clarified some issues by issuing Circular No. 13/2021 dated 30/06/2021. Let us have a look at some of the issues with regard to the applicability of TDS on purchase of Goods.

  1. No TDS if the seller has collected Tax at Source (TCS) U/s 206C(1H):
    If a transaction is  within the purview of both the sections, i.e. 194Q as well as section 206C(1H), then tax shall be required u/s 194-Q. Once the buyer has done TDS, seller is not required to do TCS U/s 206C(1H)on the same transaction.
    What if the buyer has done TCS?
    A welcome clarification is done by CBDT that if TCS has been done by the seller u/s 206C(1H) before the buyer could do TDS U/s 194-Q, then the buyer would not be required to do TDS. This concession is provided to remove difficulty, since tax rate of deduction and collection are same in section 194Q and 206C (1H).
  2. TDS on purchases including GST or Excluding GST:
    a)As far TCS is concerned, Circular No 17/ 2020 dated 29/09/2020 has clarified that no adjustment on account of GST is required to be made for TCS, since the collection is made with reference to receipt of amount of sale consideration.
    b) As far as TDS is concerned, CBDT has clarified that if the component of GST is indicated separately then TDS u/s 194Q shall be on an amount excluding GST. However, if the tax is deducted on payment basis because of payment earlier than the credit then TDS would be required on whole amount as it is not possible to identify the GST component therein.
  3. TDS Impact on Purchase returns:
    With respect to purchase return, if the money is refunded by the seller then this tax deducted may be adjusted against the next purchase from the same seller. No adjustment is required if purchase return is replaced by another goods by the same seller, as in that case the purchase on which TDS is done has been completed with the goods replaced.
  4. TDS on purchase of Shares:
    Any transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporations, including recognized stock exchanges or recognized clearing corporations located in the International Financial Service Centre are not liable for GST U/s 194Q. It follows that the purchase of shares for Rs. 50 Lakh or more from mode other than above would be liable for TDS.
  5. TDS on Electricity Bill Payment:
    Electricity has been held to be  “goods” in various judicial pronouncements. However, in view of the circular issued by CBDT, no TDS U/s 194Q is required in respect of Transaction in electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with Regulation 21 of the CERC.
  6. No TDS if income of the seller is exempt from Tax:
    No TDS is required if the seller is a person whose income is exempt from income tax (like person exempt u/s 10 or under any other Act passed by the Parliament like RBI Act, ADB Act etc). Similar exemption has also been given to the buyer from collection of TCS u/s 206C(1H) if the income of the buyer is exempt from tax.
  7. TDS on Payment of Advance Tax:
    TDS liability arises at the time of payment or credit, whichever is earlier. As a result, TDS shall be required on advance payment done against purchase of goods.
  8. TDS liability in the first year of Business:
    TDS is required only if preceding year turnover from the business exceeds Rs. 10 Cr. Since this condition would not be satisfied, no TDS would be required in the first year of incorporation.
  9. Motor Car:
    If the value of a motor vehicle exceeds Rs. 10 Lakh then the seller is liable to do TCS U/s 206C(1F). However, if there is a purchase of a car having an individual value of less than Rs. 10 Lakh and aggregate purchase of cars during the year exceeds Rs. 50 Lakh then TDS U/s 194Q would be applicable. Similarly, now TDS would be required on purchase of cars by the car dealer from their principal company.
  10. Purchase of Capital Goods & Immovable properties:
    a) TDS U/s 194Q is applicable on purchase of all goods whether it is in the nature of stock in trade or capital goods.
    b) Immoveable property is not a “goods” and hence it is not liable for TDS U/s 194Q.
  11. TDS provision on purchase of Scraps, Coals, Liquor, Timber, Tendu Patta :
    All these items are already liable for TCS u/s 206C(1). Hence, if TCS is collected under such other provision, no TDS would be required u/s 194Q.
  12. Purchase of Jewellery or bullion:
    It is undeniably goods and would be liable for TDS U/s 194Q.

The impact of the new provision is surely going to be vast & wide. Every new tax Law comes with a new set of doubts & controversies. The applicability in case of Adatiya (APMC), purchase of coal/scrap against declaration form (Form No. 27C), definition of turnover, etc are few of the issues which are full of divergent opinions. Newly introduced provision will take some time to settle. Let us hope that CBDT comes out with timely suitable clarification as and when required.

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