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Tax Deducted at Source (TDS) on the purchase of goods and Tax Collected at Source (TCS) on the sale of goods: Applicability & Rates.

TDS on Purchase of Goods and TCS on Sale of Goods: Applicability and Rates Tax Deducted at Source (TDS) on the purchase of goods and Tax Collected at Source (TCS) on the sale of goods are crucial aspects of the revenue collection system. Section 194Q governs TDS on Purchase of Goods, while Section 206C(1H) regulates TCS on Sale of Goods. Distinguishing between these two provisions is essential for understanding when and how much tax is applicable under each. Comparison Basis: – Party Liable for Deduction/Collection: TDS applies to the buyer of goods, while TCS applies to the seller. – Effective Date: TDS on Purchase of Goods became effective on 1st July 2021, whereas TCS on Sale of Goods was implemented on 1st October 2020. – Applicability: TDS applies only to purchases from residents, while TCS applies solely to sales to residents. – Turnover Limit for Deductor/Collector: TDS applies if the buyer’s turnover exceeds Rs. 10 crores, whereas TCS applies if the seller’s turnover exceeds Rs. 10 crores. – Rate Applicable (with PAN): Both TDS and TCS are levied at a rate of 0.1% when PAN is available. – Rate Applicable (without PAN): TDS applies at 5.0%, and TCS at 1.0% when PAN is not provided. – Transaction Threshold: TDS applies when the purchase amount exceeds Rs. 50 lakhs, while TCS applies when the sales amount surpasses Rs. 50 lakhs. – Time of Deduction/Collection: TDS is deducted at the time of credit or payment, whichever is earlier, while TCS is collected at the time of receipt of sales consideration. – Time Period to Deposit/Collect: Both TDS and TCS must be deposited by the 7th of the subsequent month. – Preference to be Given: If a transaction could be subject to both provisions, the purchaser is first liable to deduct TDS. If the purchaser is not liable to deduct TDS or fails to do so, the seller becomes responsible for collecting TCS. – Quarterly Statement and Certificate Issued: For TDS, Form 26Q is filed, and Form 16A is issued. For TCS, Form 27EQ is filed, and Form 27D is issued. – Exemptions: TDS on Purchase of Goods is not applicable if tax is collectible under Section 206C other than 206C(1H) or if TDS is deductible under any other section. Conclusion: Understanding the specific applicability criteria and rates of TDS on Purchase of Goods and TCS on Sale of Goods is crucial for taxpayers. Knowing the responsible party for deduction or collection, turnover thresholds, and applicable rates enables compliance with these tax provisions, streamlining the tax process and averting potential legal complications.
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Smart Tax Planning Through the Creation of an HUF

Establishing an HUF (Hindu Undivided Family) serves as a strategic tax planning tool, creating a distinct legal entity separate from its members. The HUF, overseen by a Karta, typically the eldest male member, manages its affairs. Coparceners, including both male and female descendants within four generations, hold rights to seek partition and potentially assume the role of Karta. Other family members, termed simply as members, have different entitlements within the HUF structure. Formation of an HUF involves executing a deed, obtaining a PAN, and opening a bank account in the HUF’s name. Assets within an HUF range from ancestral properties to contributions made by its members. In terms of income, HUFs can earn various types except for salary. Taxation treats HUFs separately, with benefits such as deductions under Sections 80C, 80D, and 80TTA, as well as exemptions from capital gains and home loan interest deductions. HUFs can engage in business activities and claim gifts up to Rs. 50,000 from non-relatives as nontaxable. They can also own multiple properties without tax implications and handle property transfers within the family. Partition of an HUF can occur through total partition, but partial partitions are not recognized for tax purposes. In conclusion, forming an HUF yields significant tax advantages, mirroring those available to individuals, by distributing income among family members, thus reducing overall tax liability and facilitating substantial tax savings.
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Understanding Rule 86B of the CGST Rules: Limitations on Utilizing Input Tax Credit

The CGST Act introduced Rule 86B via GST Notification number 94/2020 on December 22, 2020, with enforcement beginning January 1, 2021. The rule targets fraudulent invoicing and tax evasion by restricting the use of Input Tax Credit (ITC) in the electronic credit ledger to offset output tax liability.

Summary:

Applicability: Rule 86B applies to registered businesses under the GST regime if their taxable supplies (excluding exempt and zero-rated supplies) exceed Rs. 50 lakh in a month. Monthly assessment of taxable turnover is crucial to determine applicability.

Restrictions: Businesses under Rule 86B cannot utilize ITC beyond 99% of their total output tax liability. Essentially, businesses with monthly taxable turnover over Rs. 50 lakh must pay at least 1% of their output tax liability in cash, limiting the use of accumulated ITC.

Objectives: Rule 86B aims to discourage fake invoicing for illegitimate ITC claims. By mandating a minimum cash payment for output tax liability, the government seeks to deter the creation of fictitious invoices to inflate ITC and evade taxes.

Exceptions: Exceptions include businesses paying high income tax, those receiving significant refunds, and those who have paid output tax in excess of 1% cumulatively. Additionally, statutory bodies like government departments and public sector undertakings are exempt. The Commissioner or authorized officials can waive restrictions at their discretion.

Impact: Rule 86B primarily affects large businesses with substantial turnovers, while smaller ones with monthly taxable turnover below Rs. 50 lakh are unaffected. Though it may increase cash outflow for some large businesses, it enhances tax system transparency and integrity.

Conclusion: Rule 86B represents a significant stride against tax evasion, fostering fairness in the tax environment. Businesses need to understand its applicability, restrictions, and exceptions for compliance and to avoid penalties. Consulting tax experts can provide detailed insights into Rule 86B’s implications.