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Why dont we deduct TDS on purchase of goods?

Patwal Mahesh (service) (33 Points)

18 November 2010

Dear Friends,

Can you please tell me why dont 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? Please advise.

Regards,

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6 Replies

Suresh Prasad (www.aubsp.com) (15630 Points)
Replied 19 November 2010

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 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.

virender kumar (ASSISTANT MANAGER-ACCOUNTS & FINANCE) (45 Points)
Replied 19 November 2010

DEAR MR. MAHESH TO UNDERSTAND THE REASON BEHIND THIS U HAVE TO STUDY THE TDS CHAPTER THOROUGHLY... HOWEVER LET ME TELL U ONE THING IN SHORT THAT THERE ARE TRANSACTION UNDER INCOME TAX ACT ON WHICH TDS IS TO BE DEDUCTED.... WHICH COVERS MOST OF THE SERVICES..... OTHER THAN TRANSACTIONS COVERED UNDER AFFORMENTIONED PROVISIONS THERE IS NO NEED TO DEDUCT TAX.

REGARDS

A.Deepa (CA ) (195 Points)
Replied 19 November 2010

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.

1 Like

vinay (accounting) (165 Points)
Replied 27 July 2012

Hi,

It is a very good question and an fundamental one. This question takes you to level understanding the framework of taxation. To the extent what i understand, in the case of purchases there is already an value (market value) attached to the goods, upon which a profit margin is applied and subsequently VAT is also applied. In the case of Services it is very hard to segregate the value of services and the profit margin which means unregulated. Hence i seem the IT department would like to keep this segment taxed at source. Moreover, unlike VAT service tax is levied by the service provider(although registered) only when the turover exceeds 10 Lakhs. The services sector contributes 57% to GDP and definitely requires primary attention.

SUNIL VASWANI (CA) (21 Points)
Replied 22 December 2015

Hello,

From my point of view, TDS is deducted where deductee could evade its tax liability. But in case of sale/purchase of goods assessee has permanent business establishment due to which it probably can't evade tax.

Moreover

1. Firstly business assessee can take benefit of section 44AD (it says assessee can pay tax on presumptive basis i.e Profit can be presumed 8% of turnover, if turnover less than 1 crore). Secondly if assessee has turnover exceeding 1 crore it has to pay income tax as per audited financial statements.

2. Section 44AD does not apply on:

-Business of plying, hiring or leasing of goods carriages referred to in section 44AE.
-A person who is carrying on any agency business.
-A person who is earning income in the nature of commission or brokerage. (Therefore there is TDS provision u/s 194D & 194H)

3. TDS on interest or rent is deducted because deductee doesn't have any permanent business establishment.

4. In all other provisions of TDS chapter, due to aforesaid reasons TDS is deducted.

Thank you,

Ritik Chopra (student) (8123 Points)
Replied 01 April 2021

In my opinion it would be very difficult to deduct tax on purchase of goods and the compliance requirement will increase. However TCS is to be deducted on sale of goods u/s 206C(1H)