The Central Board of Direct Taxes (CBDT) has issued the further Guidelines for Section 194-O, Section 194Q, and Section 206C (1-I) of Income Tax Act, 1961 vide a Circular No. 20/2021 dated 25th November 2021 for removing certain difficulties. The Finance Act, 2020 and the Finance Act, 2021 have inserted sections 194-O, 194Q, and 206C(1H) to the Income-tax Act for mandating deduction and collection of tax at source on certain transactions. The guideline on TDS/TCS under Section 194O, section 194Q & Section 206C is explained as under.
Section 194-O (4) of the Income-tax Act
Finance Act, 2020 has inserted a new section 194-O in the Income-tax Act 1961 which mandates that an e-commerce operator deduct income-tax at the rate of 1% of the gross amount of sale of goods or provision of service or both, facilitated through its digital or electronic facility or platform
Exemption from tax deduction has been provided to certain individuals or Hindu undivided families fulfilling specified conditions.
This deduction is required to be made at the time of credit of the amount of such sale or service to the account of an e-commerce participant or at the time of payment to such e-commerce participant, whichever is earlier
Section 206C (1H) of the Income-tax Act
Finance Act, 2020 also inserted sub-section (1 H) in section 206C of the Act which mandates that a seller receiving an amount as consideration for the sale of any goods of the value or aggregate of such value exceeding Rs.50 lakh rupees in any previous year to collect tax from the buyer. The sum is equal to 0.1 percent of the sale consideration exceeding 50 lakh rupees as income-tax.
The collection is required to be made at the time of receipt of the amount of sales consideration. ‘Seller is defined as the person whose total sales or gross receipts or turnover from the business carried on by him exceed Rs.10 Crore rupees during the financial year immediately preceding the financial year in which the sale of a good is carried out”.
Section 194Q of Income Tax Act
Finance Act, 2021 inserted a new section 194Q to the Income Tax Act. It applies to any buyer who is responsible for paying any sum to any resident seller for the purchase of any goods of the value or aggregate of value exceeding Rs.50 lakh rupees in any previous year.
The buyer, at the time of credit of such sum to the account of the seller or at the time of whichever is earlier, is required to deduct an amount equal to 0.1% of such sum exceeding fifty lakh rupees as income tax.
A buyer is defined to be a person whose total sales or gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out.
Applicability of TDS Provisions under Section 194-O
E-auction services carried out through an electronic portal: In case of purchase of goods through the electronic platform, every e-commerce operator, facilitating the sale of goods or provision of services of an e-commerce participant through its digital or electronic facility or platform, is required to deduct tax at source under Section 194-O.
In an e-auction, the e-auctioneer is only responsible for the price discovery, and the transaction of purchase/sale is carried out directly by the purchase & seller.
Further, the price so discovered can be negotiated between parties without the knowledge of the e-auctioneer.
Thus, the CBDT has clarified that section 194-O shall not apply to e-auction activities carried out by e-auctioneers if the prescribed conditions have been satisfied.
CBDT also clarified that the buyer and seller would still be liable to deduct/ collect tax as per the provisions of section 194Q and 206C (1H) of the Income Tax Act.
Applicability of TDS provisions under Section 194Q
Adjustment of various state levies and taxes other than GST: Any buyer who is responsible for paying any sum to any resident seller for the purchase of any goods of the value or aggregate of such value exceeding Rs. 50 lakhs in any previous year shall be liable for deduction of tax under Section 194Q.
The CBDT vide Circular 13 of 2021, dated 30-06-2021, has clarified that in case the GST component has been indicated separately in the invoice, tax is to be deducted under section 194Q only on the amount credited in the account of the seller without including GST. However, Circular 13 of 2021 has not provided detail on other non-GST levies such as VAT, excise duty, CST, etc. Now, the CBDT has clarified that if the component of VAT, sales tax, excise duty, CST, etc., have been indicated separately in the invoice, then TDS under section 194Q is to be deducted without including such amounts.
Applicability of section 194Q of the Act in cases where exemption has been provided under section 206C (1 A) of the Act
Section 206C (1H) provides the collection of tax (TCS) by a seller from the amount received as consideration for the sale of goods if it exceeds Rs. 50 lakhs in any previous year.
Section 206C also provides that no tax shall be collected in respect of goods that are covered by sub-section (1), (1F), or (1G).
Further, section 206C(1A) provides that the seller is not required to collection of tax (TCS) from the resident buyer if such buyer has filed a declaration that goods are purchased for manufacturing, processing, or producing articles or things or for generation of power and not for trading purpose. Considering the above, it has been represented that goods that are covered under sub-section (1) but exempted under sub-section (1A), no TCS would be collectible as section 206C(1H) categorically exclude the goods which are covered under sub-section (1).
The provisions of section 194Q don’t apply to those transactions where tax is collectible under section 206C except sub-section (1H) thereof. Since under section 206(1A), tax is not required to be collected for goods covered under sub-section (1), the CBDT has clarified that the provisions of section 194Q will apply, and the buyer shall be liable to deduct tax if specified conditions are fulfilled.
Applicability of the provisions of section 194Q in case of the department of Government not being a public sector undertaking or corporation
A government department that is not carrying out any business or commercial activity is not regarded as a ‘buyer’ for section 194Q. Thus, such organizations are not required to deduct TDS on goods purchased by them
The CBDT has clarified that the Central Government or State Government shall not be considered as a ‘seller’. No tax is to be deducted under section 194Q if the seller of goods is Central Government or State Government.
CBDT clarified that any other person, such as a Public Sector Undertaking or corporation established under Central or State Act or any other such body, authority, or entity, shall be required to comply with the provisions of section 194Q and tax shall be deducted accordingly.