Managing personal accounts and handling income and expenses is a significant yet confusing and exhausting task due to the frequent reforms and changes in tax laws. In India, GST (Goods and Service Tax) is followed for the same, which came into effect on 1st July 2017.
The article outlines the tax reforms that have been introduced in recent years and enlists the reasons as to how they directly affect one’s income bifurcation in terms of TDS or Tax Deducted at Source.
New TDS Section 194Q
The recent budget has proposed certain changes that are expected to impact every business operating in India drastically. The changes pertain to TDS on Purchase Transactions.
One needs to be updated with the latest but significant changes in all commercial and business laws. Such crucial changes wrt TDS on Purchase Transactions will be in effect on 1st July 2021, as proposed by Honorable Finance Minister Ms. Nirmala Sitharaman in her budget speech.
Key Elements of TDS Section 194Q
Section 194Q is proposed to be applicable from 1st July 2021 for business transactions:
- All Purchase Transactions are proposed to be subject to TDS provisions.
- Such a transaction can be effective with TDS and will have to be deducted at 0.1% of the purchase transaction or payment thereof, whichever is earlier.
- The applicability of this section will also extend to an assessee whose aggregate turnover in the immediate previous year exceeds ten crores.
The new section 194Q is going to be applicable from 1st July 2021.
Under section 194Q, Tax Deducted at Source (TDS) shall be applicable at 0.1% on aggregate purchases over and above 50 lakhs from a supplier in India in a financial year.
When to Deduct?
When the value or aggregate of purchases from a supplier or payment, whichever is earlier, exceeds Rs.50 lakhs during the previous year, the provision will be effective as TDS will have to be deducted at 0.1% of the Purchase Transaction or payment.
Who should Deduct?
The buyer is responsible for making payment to a resident to purchase goods when the value of purchases from a supplier exceeds 50 lakhs during the previous year. The Purchaser, hence, is responsible for deducting TDS as applicable.
Consequences of non-deduction by the Purchaser
If the Purchaser fails to comply with the provision to deduct TDS as applicable, Section 40A(IA) provides that the value of such Purchase Transactions will be subject to 30% disallowance.
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- If there is a transaction under any other section of the Income Tax Act, other than TCS collected under section 206 C (1H) of the Act, TDS is not required to be deducted on that particular transaction.
- However, if TDS is required to be deducted under this section, then the same Transaction TCS on sales will not be Collected by Sell.
- TDS on a Gross amount involves cash flow reductions.
Mr. Z Turnover in FY 20-21 is more than 10Cr. His purchase from Mr. A till 30.06.2021 is Rs 45 L. No on 07.07.2021 He Purchases goods Rs 7 L from Mr. A. Mr. Z is required to deduct TDS on that purchase of Rs 7 L only.
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