This article outlines the liability of tax deducted at source on a transaction of sale under the provisions of the income tax act.
TDS stands for tax deducted at source. This means that in certain financial transactions, the person making the payment, who is known as a ‘legal intermediary’ will deduct a prescribed percentage of the payment as tax and pay the rest to the party
- Once the amount has been deducted the legal intermediary has to pay TDS online on the tax authority’s portal
- The person from whom TDS has been deducted can set off his annual tax liability up to that extent of amount deducted at source
- And if there is no tax liability at the end of the year, he or she can claim a refund of the amount deducted at source
- This was done to not only ease the burden of tax collection on the tax authorities
- It was also done with an aim to make a third party accountable in making sure that the person receiving the income is not evading taxes.
But the amount of tax deducted at source is never the full percentage of the tax that may be liable. It is always only a part of the prospective tax liability. This is because the main aim of this form of tax collection is to report the transaction in the first place so that the authorities are aware of the transaction and can investigate it any time they like once it is on record. This is TDS in general.
Let us now take a look at who is liable to pay TDS when it comes to a sale.
Who Is Liable to Pay TDS on Sales?
How do you pay any tax? You deposit the amount of tax payable in the bank account of the government tax authority. But that is not the case when it comes to tax deducted at source. When it comes to tax deducted at source, the idea is to make a third party accountable in making sure that the transaction where an income has been generated is put on government record and a portion of the prospective tax liability is deducted from the payment to the taxpayer and then makes a TDS deposit online. So as you can see, the person making the payment is not the same as the person depositing the tax.
Since the tax is being deducted from the payment made to the vendor, the vendor is paying the TDS. But it is the buyer who actually processes the online TDS payment, acting as a legal intermediary between the government and the vendor.
As to how much TDS has to be deducted from the payment depends on the nature of the sale.
Sale of Goods
TDS on sale of goods was introduced only in 2021 by adding section 194Q to the Income Tax Act, 1961. As per this section, the ‘buyer’ of the ‘goods’ exceeding a value of ₹50 lakhs has to deduct 0.1% of the amount exceeding ₹50 lakhs and make the TDS deposit online. So TDS would be 0.1% of the total purchase price minus ₹50 lakhs.
- The term ‘buyer’ has been defined specifically in this section for the purposes of TDS on deduction of goods
- As per this section a buyer is ‘any person or organisation making a purchase of goods exceeding ₹50 lakhs from a resident seller and has had a business turnover exceeding ₹10 crores in the year preceding the year of exchange’
- So if the buyer has made a purchase exceeding ₹50 lakhs but has not had a business turnover of ₹10 crores in the previous financial year, then TDS is not applicable to the transaction
- This provision has been put in place to exclude any one off transaction that exceeds ₹50 lakhs
- The assumption is that a person whose business turnover exceeds 10 crores is likely to frequently make purchases exceeding ₹50 lakhs and thus can be held fairly accountable to report such transactions, make deductions and make the TDS deposit online
- For the purposes of income tax, a resident is any person who has been living within the sovereign boundaries of India for a period of 180 days or more, irrespective of nationality
- In the stipulation that outlines the applicability of section 194Q, it is clearly mentioned that the seller has to be a resident
- But there is no mention of whether a buyer has to be resident or not. So the income tax authority issued a circular later, clarifying that the buyer also has to be a resident of India with one exception
- If a non-resident is making the purchase for the purpose of becoming a permanent resident of India, then the provisions of Section 194Q will become applicable and the non-resident buyer will be required to deduct TDS as per the provisions of this section and make the TDS payment online
- This is also applicable to any non-resident organisation making purchases for the purpose of establishing a local headquarters in India.
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Purchase of Shares & Securities
There is no specific mention anywhere in the income tax with regards to tax deduction at source on the purchase of shares and other financial securities. But there is an interesting twist in this matter. The Sale of Goods Act, 1930, has listed shares and securities under the definition of ‘goods.’ And unlike the term ‘buyer’, ‘goods’ have not been specifically defined for the purposes of section 194Q. This gives precedence to the definition of goods under the Sale of Goods Act.
- So on the face of it, purchase of shares and securities exceeding ₹50 lakhs would require the buyer to deduct TDS as per the provisions of section 194Q and make the TDS deposit online
- But it is very impractical to do so because of the large volume of daily transactions of buying and selling of shares and securities in the stock markets
- So the income tax authorities issued a circular, clarifying that purchase of shares and securities in any recognised stock exchange will not attract the provisions of section 194Q
- And since the circular was silent on purchase of unlisted shares and securities, it is automatically presumed that purchase of shares and securities of private limited companies and unlisted public limited companies exceeding ₹50 lakhs would require the buyer to deduct TDS as per the provisions of section 194Q and make the TDS deposit online.
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Purchase of Immovable Property
According to section 194LA of the income tax act, purchasing any immovable property requires the buyer to deduct 1% of the purchase value and make the TDS deposit online. However, if the land is agricultural land, then the purchase is exempt from the provisions of section 194LA and the buyer need not deduct any TDS.
Conclusion
Before the introduction of TDS, only the person receiving the income was required to be vigilant about how much tax is to be paid. But with the introduction of TDS, even the person making the payment has to be aware of the tax implications of the payment being made. TDS: https://incometaxindia.gov.in/Pages/Deposit_TDS_TCS.aspx is applicable on several other types of transactions such as rent, salary, interest on deposits etc. If you have any queries with regards to TDS and its applicability, get in touch with our team of tax experts and get the right kind of guidance for all your TDS related requirements.
FAQs
Who is liable to deduct TDS on sale in India?
In India, the person responsible for making payments for specified transactions is liable to deduct TDS (Tax Deducted at Source). Typically, it is the buyer or service recipient who deducts TDS before making the payment to the seller or service provider.
Does the buyer or seller pay the TDS?
The buyer or service recipient is generally responsible for paying TDS in India. They deduct the applicable tax amount at the source before making the payment to the seller or service provider, ensuring compliance with tax regulations.
Who is liable to pay the TDS?
The party making payments, such as the buyer or service recipient, is liable to pay TDS. This involves deducting the applicable tax amount at the source before disbursing the payment to the seller or service provider, as per the provisions of the Income Tax Act.
What is a customer liable for paying TDS?
Customers in India are generally not directly liable for paying TDS. Instead, it is the responsibility of the buyer or service recipient to deduct TDS before making the payment to the seller or service provider. Customers indirectly contribute by adhering to the TDS regulations when involved in specified transactions.
Who is liable to pay TDS and TCS under GST?
Under the Goods and Services Tax (GST) regime in India, both buyers and sellers can be liable to pay TDS (Tax Deducted at Source) and TCS (Tax Collected at Source), respectively, depending on the nature of the transaction and the entities involved.
What will happen if someone doesn't pay TDS Online?
If someone fails to pay TDS (Tax Deducted at Source) online, they may face penalties and interest as per the Income Tax Act. Non-compliance with TDS payment obligations can lead to legal consequences and financial repercussions.
What are the new rules for TDS payment?
The new rules for TDS payment often involve changes in rates, thresholds, or procedures, depending on amendments introduced by the government. Staying informed about the latest updates through official channels is crucial for ensuring compliance with the current TDS regulations.
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