The Central Board of Direct Taxes (CBDT) has issued a new set of guidelines on 25 November 2021 with respect to the provisions relating to newly inserted Sections on Tax Deduction at Source (TDS) and Tax Collected at Source (TCS).
It may be noted that Section 194-O which is effective from 1 October 2020 mandates the e-commerce operators to deduct specified amount of tax from the sums payable to e-commerce participant for sale of goods or provision of services facilitated through its digital or electronic platform. Similarly, ac per Section 206C(1H), seller is to collect specified amount of tax from the buyer of goods in relation to the consideration for sale of goods exceeding INR 50 lakh. Further, as per Section 194Q which is effective from 1 July 2021, buyer must deduct specified amount of tax from the consideration payable to the seller for purchase of goods exceeding INR 50 lakh.
Synopsis of CBDT Circular
CBDT released a detailed list of tax deducted at source (TDS)/ tax collected at source (TCS) provisions for various transactions to provide clarity to taxpayers on the following provision of Section 194O, section 194Q & Section 206C of the Income-tax Act.
- Applicability of TDS provisions under Section 194-O
- E-auction services carried out through an electronic portal
- Applicability of TDS provisions under Section 194Q
- TDS on the component of indirect taxes other than GST
- TDS if the exemption is provided under section 206C(1A)
- TDS in case of the department of Government other than PSU or Corporation
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
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.
Section 194-O will not apply to e-auction activities carried out by e-auctioneers
- Difficulties in applying TDS in case of e-auctions as the transaction of sale and purchase is carried on directly between buyers and sellers
- E-auctioneer responsible only for providing electronic portal for price discovery of transaction.
- Now clarified that section 194-O shall not be applicable to e-auction activities carried out by e-auctioneers if all the conditions mentioned here under are satisfied:
- E-auction services provided by the e-auctioneer through its electronic portal is only responsible for price discovery of the
- The price discovered through e-auction will be negotiable between the parties participating in it separately.
- The transaction of purchase/sale takes place between the parties outside the electronic portal of the e-auctioneer.
- Except for price discovery, the e-auctioneer will not be responsible for facilitating the sale of goods for which the e-auction was
- Payments for the transaction is carried out between the buyer and seller outside the electronic portal.
- The e-auctioneer does not have any information on the quantum and schedule of payment.
- The client will deduct TDS at applicable rates on the payment made to the e-auctioneer in lieu of receiving e-auction services.
- Since, TDS will not be required to be deducted under section 194-O, the buyer and seller may be required to deduct/collect TDS/TCS under section 194Q and section 206C(1H) of the IT Act, as the case may be.
Adjustment of various State levies and taxes other than GST and purchase returns
- Clarification has now been provided on deduction of TDS on the VAT, Excise duty, sales tax component on purchase of goods which are exempt from
- Where the tax has to be deducted under section 194Q on the basis of credit to the books of account (based on invoice), tax can be deducted on value excluding VAT / Sales tax / Excise Duty / CST
- Where tax has to be deducted on payment basis (advance paid before credit in books based on invoice), tax to be deducted on the entire payment including VAT / Sales tax / Excise Duty / CST
- If the seller refunds the consideration on account of purchase return, the tax deducted and deposited by the buyer can be adjusted against subsequent purchase of goods.
- No adjustment required where goods are returned by the buyer and replaced by the seller.
Section 194Q will be applicable on goods which are exempted under Section 206C(1A)
- Sub-section (1A) of section 206C of the IT Act exempts tax collection for certain goods such as scrap, coal, iron ore if buyer furnishes declaration that goods are to be utilized for manufacturing or production of articles or thing.
- Section 206C(1H) provides for collection of tax on sale of all goods other than those (like scrap, coal, iron ore etc.) to which other specific TCS provisions
- Section 194Q of the IT Act does not apply to those transactions where tax is collectible under any of the sub-sections of section 206C [other than subsection (1H)].
- Now clarified that TDS under section 194Q will apply on purchase of goods which may be otherwise exempted under section 206C(1A).
- For example, a buyer purchases scrap for manufacturing of certain
- Buyer submits a declaration to the seller under section 206C(1A).
- Seller not required to collect TCS u/s
- Buyer of scrap required to deduct TDS u/s 194Q
FAQs
What is the TDS limit for 194Q?
TDS under Section 194Q is deducted at 0.1% only when the value of the goods are exceeding Rs 50 lakhs.
Are 194Q and 206C both applicable?
If any transaction on purchase of goods attracts TDS under Section 194Q as well as tax collected at source under Section 206C(1H), then only Section 194Q shall apply in such a case.