Transaction tax

Companies do not need to deduct TDS on purchases of stocks / commodities through exchanges: CBDT


Companies that buy stocks or products traded through recognized stock or commodity exchanges for a value even greater than Rs 50 lakh will not be required to deduct withholding tax (TDS) on the transaction, a declared the income tax service.

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

Such businesses, while making payments for the purchase of goods exceeding Rs 50 lakhin per fiscal year from a resident, would be required to deduct a TDS of 0.1%.

However, this provision would not be applicable to transactions in stocks or commodities carried out through stock exchanges, said the Central Commission on Direct Taxes (CBDT).

The tax service declared having received declarations indicating that there are practical difficulties in the implementation of the provisions of the tax deduction at source (TDS) contained in article 194Q of the IT law in the event of transaction via certain exchanges and clearing companies as sometimes in those transactions there. There is no individual contract between buyers and sellers.

“In order to eliminate these difficulties, it is provided that the provisions of article 194Q of the Law do not apply to transactions in securities and commodities which are negotiated through recognized or cleared exchanges and settled by the recognized clearinghouse. the CBDT said in its guidelines dated June 30.

Article 194Q relating to the TDS deduction by companies was introduced in the 2021-2022 budget and entered into force as of July 1, 2021.

The CBDT also clarified that only entities with a turnover of more than Rs 10 crore in the previous fiscal year would be required to deduct the TDS when purchasing goods over Rs 50 lakh.

“A buyer is defined as a person whose total sales or gross receipts or turnover of the business he exercises exceeds Rs 10 crore during the fiscal year immediately preceding the fiscal year in which the ‘purchase of the property is made, ”he said.

AMRG & Associates senior partner Rajat Mohan said merchandise transactions were only captured in GSTN systems as IT laws never captured transactional data related to purchase / purchase. sale of goods. Now, with these new TDS provisions, income tax systems will also capture data on transactional sales of goods on a monthly basis.

The new income tax portal will use this information for big data analysis, and tax officials in jurisdictions will also be able to use these numbers during the assessment process, Mohan said.

“This new change will tighten the grip on the manufacturing and trading communities, requiring them to report the correct numbers on tax returns, which will lead to increased tax revenues in the long run,” Mohan added.

He indicated that the CBDT clarified that these provisions of the TDS do not apply to a buyer who does not have a commercial activity, regardless of the turnover or income from a non-commercial activity.

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

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

It was also explained that the threshold of Rs 50 lakh for the triggering of the TDS will be calculated from April 1, 2021.


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