Businesses buying shares or commodities through recognized stock or commodity exchanges for any value exceeding Rs 50 lakh will not be required to deduct TDS on the transaction, the Income Tax Department has said.
Tax Deduction at Source (TDS)
TDS is the amount of tax that is deducted from the taxpayer by the employer or the deductor and deposited to the Income Tax Department on his behalf. TDS rates are determined based on the age group and income of different individuals.
New rules of TDS for businesses
With effect from July 1, 2021, the Income Tax Department has introduced a provision related to Tax Deduction at Source (TDS) which will apply to businesses with a turnover of more than Rs 10 crore.
Such businesses will be required to deduct TDS of 0.1 per cent while making any payment to a resident for purchase of goods exceeding Rs 50 lakh in a financial year.
However, this provision will not apply to share or commodity transactions done through stock exchanges, the Central Board of Direct Taxes (CBDT) has said.
The CBDT has also clarified that only those entities having turnover of more than Rs 10 crore in the previous financial year will be required to deduct TDS at the time of purchase of goods above Rs 50 lakh.
“Buyer is defined as a person whose aggregate sales or gross receipts or turnover from business carried on by him exceeds Rs 10 crore during the financial year immediately preceding the financial year in which a good is purchased,” it said.
The CBDT has also pointed out that the limit of Rs 50 lakh for triggering TDS will be calculated with effect from April 1, 2021.
Tax department decides to remove difficulties of TDS
The tax department said it had received representations stating that there are practical difficulties in applying the provisions of Tax Deduction at Source (TDS) contained in section 194Q of the IT Act, in case of transactions through certain exchanges and clearing corporations as sometimes happens in these transactions, there is no one to one contract between buyers and sellers.
“For the removal of such difficulties, it is provided that the provisions of section 194Q of the Act shall not apply in respect of transactions in securities and commodities, which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporations.” the CBDT said in its guidelines.
Section 194Q relating to TDS deduction by businesses was introduced in the Budget for 2021-22 and has come into force from July 1, 2021.