CBDT: TDS applicable on buyer-seller transactions above Rs 50 lakh after July 1, 2021


The Central Board of Direct Taxes (CBDT) Wednesday clarified that buyers would need to deduct tax at source at 0.1% of amount exceeding Rs 50 lakh when paid or credited to a resident seller on transactions after July 1, 2021, under section 194Q of the income tax Act which comes into effect from July 1.

The Board has clarified that threshold of Rs 50 lakh for triggering TDS shall be computed from April 1, 2021 and GST component will have to be segregated at the time of credit.

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The Board has further clarified that if a transaction attracts TDS under both 194O, applicable on e-commerce operators, and 194Q of the Act, the deduction shall have to be made under 194O.

Further, where there is a clash between TDS and provisions of tax collected at source () on sale of goods under 206C(1H), TDS provisions shall prevail.

“Addressing the open issues, the circular is just in time and accords much needed clarity on the subject matter, as the compliance framework becomes effective tomorrow,” said Neha Malhotra, director at Nangia Andersen LLP.

Section 194Q provides that every buyer who is responsible for paying any sum to a resident seller, for purchase of any goods of the value or aggregate of value exceeding Rs 50 lakh rupees in any previous year, shall at the time of credit of such sum to the account of the seller or at the time of payment, whichever is earlier, deduct an amount equal to 0.1 % of such sum exceeding Rs 50 lakh as income tax.

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According to a circular issued by the Board Wednesday, buyer has been defined as a 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.

The circular highlighted that when tax is deducted at the time of ‘credit’, TDS under 194Q shall be deducted on amount credited without including the GST component, but if tax is deducted on payment basis then TDS would have to be deducted on the whole amount since it would not be possible to identify the GST component.

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Additionally, it has been clarified that while the new provisions shall apply on advance payment, the same shall not be applicable to a non-resident whose purchase of goods is not connected with permanent establishment (PE) of such non-resident in India.



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