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June 25, 2021

Practical Examples With Questions & Answer For Understanding The Calculation Of Tax Deducted At Source (TDS)

  1. Section 194Q is applicable to which buyers: –

The section 194Q of TDS is applicable only to those buyers whose turnover, gross receipt or sales in the previous year was more than Rs.10 crores hence in the financial year ended on 31st March 2021, the buyers whose turnover was more than Rs.10 crore in that year, they have to deduct TDS from their resident seller on the purchase of above Rs.50lakh in the current financial year 2021-22.

Therefore, if the turnover of a buyer is less than Rs.10 crore in the year ended March 31,2021, he does not have to comply with this provision in current financial year.

  2. On which amount TDS is to be deducted: –

This TDS is to be deducted only on the amount above Rs 50.00 lakh in a financial year from one seller i.e., if the purchase is for Rs 67.00 lakh then the Buyer has to deduct TDS only on the amount above Rs 50 lakh i.e., on Rs 17.00 lakh, then for each seller, the buyer will have to deduct first Rs. 50 Lakhs then deduct TDS on remaining amount.

Now one more thing to keep in mind that this limit of Rs 50 lakh is for one financial year for each seller, so now that this provision is applicable from 1st July 2021 then TDS you have to deduct only on purchases after 1st July 2021 but While ascertaining the limit of purchase Rs. 50.00 Lakhs, the purchases from April 1, 2021, the purchase will also have to be taken into account.

Examples 1: –

Purchaser has made purchase from seller from 1st April 2021 to 30th June 2021 for Rs 40lakhs and now on 1st July 2021 another purchase has been made from the same seller for Rs 30 lakhs. On what amount is TDS to be deducted?

Ans

Out of 30 lakhs on this purchase TDS has to be deducted on Rs. 20 lakh after deducting Rs 10 lakh. The limit of a financial year is Rs 50 lakh per seller, so purchaser has already purchased Rs 40 lakh out of this limit before June 30, so now only Rs 10 lakh is left out of the limit of Rs 50 lakh.

Example 2: –

Purchaser has made a purchase from seller from 1st April 2021 to 30th June 2021 for Rs 70lakhs and now on 1st July 2021, another purchase has been made from the same seller for Rs 30 lakhs, On what amount is TDS to be deducted?

Ans.

Purchase for Rs 30 lakhs only TDS is to be deducted. The limit of Rs. 50 lakh per seller is for a financial year and purchaser has already exhausted this limit before 30th June 2021.

  1. Whether TDS is to be deducted while adding GST: –

The reason for this controversy that the TCS to be deducted under section 206 (C) (1H)where the Central Board of Direct Taxes had clarified that TCS is to be deducted only on the entire amount received including GST.

The Central Board of Direct Taxes had not clarified in the case with TDS under section 194Q. But keep in mind here that no such clarification has been issued with respect to the goods. Hence it wants to deduct this TDS on the amount of GST.

  1. At what time TDS is to be deducted: –

TDS is to be deducted at the time when such amount is credited to the seller’s account or paid to him, whichever is earlier.

  1. TDS rate 5% for non-delivery of PAN number – Section 206AA

If the seller does not give his PAN number to the buyer, then this rate of TDS will be 5%

  1. Rate of TDS for Non-filers of ITR:

A new category of “Specified Persons” whose TDS is to be deducted from 1st July 2021has been mentioned under section 206AB for whom TDS is to be deducted at twice the regular rate or 5 percent, whichever is higher. These persons are categorized as the persons in whose case the TDS/TCS deducted from them from all the sources is high in but they are defaulters in filing their returns regularly. Here defaulters mean persons who are not filing their ITRs for continuous 2 years in spite of the fact that in each of both these 2 years the TDS/TCS deducted and/or collected is more than Rs.50000.00.

  1. What will be the result of not deducting/depositing TDS: –

As per section 40(ia) of the Income Tax Laws an amount has been paid to a resident on which TDS is to be deducted but not deducted and if deducted and the same is not deposited before the expiry of the time provided for furnish of ITR under section 139(1)then the 30% of the amount on which TDS is to be deducted and deposited will be added to the income of that person.

  1. When not to deduct TDS: –

In this regard, if all the conditions mentioned above are fulfilled, the buyer becomes liable to deduct TDS, even then he does not have to deduct this TDS and two such situations are there: –

(i). Where TDS is to be deducted on the transaction of this purchase under any of the provision under the Income Tax Act.

(ii). When TCS is deductible under 206C (excluding TCS provisions applicable to sale of goods under section 206(C)(1H)) by the seller on that transaction, the provisions of TDS are not applicable.

Please keep in mind here that TCS is to be deducted in any of the provisions of TCS in section 206C, then TDS is not to be deducted under this section.

So please note where there is a transaction on which buyer and seller both are covered to deduct TDS and TCS respectively then it is only the buyer who has to deduct TDS and  in all those cases all these buyers should inform the seller.

For further details, Contact us on:

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