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TDS on Purchases Made through Exchanges Not Needed for Businesses with a Turnover Less Than Ten Crore Rupees

The income tax department has stated that businesses purchasing shares or commodities traded through recognized stock or commodity exchanges for any amount over Rs 50 lakh will not be required to deduct TDS on the transaction.

The income tax department has introduced a rule relating to Tax Deducted at Source (TDS) that will take effect on July 1, 2021, and will apply to enterprises with a turnover of more than Rs 10 crore.

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

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 crore 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.

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