Businesses need not deduct TDS on share/commodity purchases via exchanges: CBDT

Businesses buying shares or commodities traded through recognised stock or commodity exchanges for any value even above Rs 50 lakh will not be required to deduct Tax Deducted at Source (TDS) on the transaction, the income tax department has said.

With effect from July 1, 2021, the income tax department has introduced a provision relating to TDS which would be applicable to businesses with turnover of over Rs 10 crore.

Such businesses while making any payments for purchase of goods exceeding Rs 50 lakhin a financial year to a resident would be required to deduct a 0.1 per cent TDS.

However, this provision would not be applicable on share or commodity transactions done through stock exchanges, theCentral Board of Direct Taxes (CBDT) has said.

The tax department said it had received representations saying that there are practical difficulties in implementing the provisions of Tax Deduction at Source (TDS) contained in Section 194Q of the I-T Act in case of transaction via certain exchanges and clearing corporations as sometime in these transactions there is no one to one contract between the buyers and the sellers.

"In order to remove such difficulties, it is provided that the provisions of section 194Q of the Act shall not be applicable in relation to transactions in securities and commodities which are traded through recognised stock exchanges or cleared and settled by the recognised clearing corporation," the CBDT said in its guidelines dated June 30.

Section 194Q relating to TDS deduction by businesses was introduced in the 2021-22 Budget and has come into effect beginning July 1, 2021.

The CBDT has also clarified that only those entities having turnover from the business of more than Rs 10 crores in the preceding financial year would be required to deduct TDS at the time of purchase of goods over Rs 50 lakh.

“Buyer is defined to be person whose total sales or gross receipts or turnover from the business carried on by him exceed Rs 10 crore during the financial year immediately preceding the financial year in which the purchase of good is carried out,” it said.

AMRG & Associates Senior Partner Rajat Mohan said transactions in goods were captured only in GSTN systems, as I-T laws never captured the transactional data related to purchase/ sale of goods. Now with these new TDS provisions, Income Tax systems will capture transactional sales of goods data also on a monthly basis.

New income tax portal will use this information for big data analytics, and jurisdictional tax officers can also use these numbers during the assessment proceedings, Mohan said.

"This new change will tighten the grip on manufacturing and trading communities, mandating them to indicate correct numbers in tax filings, leading to a surge in tax collections in the long run,” Mohan added.

He said that the CBDT has clarified that these TDS provisions do not apply to a buyer who does not have a business activity, irrespective of the turnover or receipts from non-business activity.

“Thereby households, regardless of the non-business financial transactions value, are not liable to deduct any TDS under these provisions,” Mohan added.

Commenting on the guidelines, Nangia Andersen LLP said CBDT has clarified that since the provisions mandate the buyer to deduct tax on earlier of 'credit' or 'payment', if either of the two events happen before July 1, 2021, the transaction would not be subject to TDS.

It has also been explained that the threshold of Rs 50 lakh for triggering TDS shall be computed from April 1, 2021.

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