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May 2017

Why TDS is not Deducted on Purchase of Goods

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Question: Why don’t we deduct TDS on cases where goods are purchased ? Is there any section which says that TDS has to be deducted only on services and not on purchase of goods?

Answer:

TDS is one of the modes of collecting Income-tax from the assessee. Such collection of tax is effected at the source when income arises or accrues. Hence where any specified type of income arises or accrues to any one, the Income-tax Act enjoins on the payer of such income to deduct a stipulated percentage of such income by way of Income-tax and pay only the balance amount to the recipient of such income.

The tax so deducted at source by the payer, has to be deposited in the Government treasury to the credit of Central Govt. within the specified time. The tax so deducted from the income of the recipient is deemed to be payment of Income-tax by the recipient at the time of his assessment.

Income from several sources is subjected to tax deduction at source. Some of such income subjected to T.D.S. is salary, interest, dividend, interest on securities, winnings from lottery, horse races, commission and brokerage, rent, fees for professional and technical services, payments to non-residents etc.

The intention of the legislation is as follows:

  • It is not required for the department to wait for 1 Year to collect the tax from Assessee
  • Revenue Generation for the department is much earlier
  • Due to these provisions it is possible for the department to control tax evasion

However the TDS provision does not apply to the payments specifically meant for purchase of goods. In those case the Income tax department purely depends on the Advance Tax paid by the Assessee on respective due dates specified by the department.

Exception:

Section – 206C of Income Tax

There could be tax deduction on purchases provided purchase relates to goods specified U/Sec. 206C of the Income Tax act. In such cases, tax is collected by seller and its called Tax collected at source (TCS).

TCS means a collection of tax at source by the seller (collector) from the buyer (collectee/payee) of the goods (specified u/s 206C of Income-tax Act, 1961, like timber obtained under forest lease, scrap, any other forest produce not being timber or tendu leaves etc.,). For e.g. if purchase value of goods is Rs.10,000/-, the buyer will pay an amount of Rs.10,000/- + X (X being the value of TCS as prescribed under Income-tax Act, 1961) to the seller. The seller will deposit the tax collected at source (TCS) at any of the designated branches of the authorised banks.

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