CBDT issues more clarifications on deduction and collection of tax at source under sections 194-O, 194Q & 206C(1H)

Circular 20 of 2021, dated 25-11-2021

The Finance Act, 2020 and the Finance Act, 2021 have sections 194-O, 194Q, and 206C(1H) to the Income-tax Act mandating deduction and collection of tax at source on certain transactions. These sections also empower the CBDT to issue guidelines for removing any difficulties and provide clarity to taxpayers on any provision of sections.

The CBDT had already issued Circular 17 of 2020, dated 29-09-2020, and Circular 13 of 2021, dated 30-06-2021, providing such guidelines. In continuance of this, the CBDT has issued another set of guidelines for the taxpayers.

1. Applicability of TDS provisions under Section 194-O

1.1 E-auction services carried out through an electronic portal

In case of purchase of goods through the digital or electronic facility or 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 in relation to e-action activities carried out by e-auctioneers if the prescribed conditions have been satisfied.

2. Applicability of TDS provisions under Section 194Q

2.1 TDS on the component of indirect 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. Fifty 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 GST component has been indicated separately in the invoice, tax is to be deducted under section 194Q only on the amount credited in account of seller without including GST. However, Circular 13 of 2021 is silent 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.

2.2 TDS if exemption is provided under section 206C(1A)

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. Said section also provides that no tax shall be collected in respect of goods which are covered by sub-section (1), (1F), or (1G).

Further, section 206C(1A) provides that the seller is not required to 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 stakeholders requested to clarify whether the provisions of section 194Q will be applicable in such a case?

The provisions of section 194Q don’t apply to those transactions where tax is collectible under section 206C except sub-section (1H) thereof. Since by virtue of 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.

2.3 TDS in case of department of Government other than PSU 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 issue has been raised with regards to whether the dept. of Government will be considered ‘Seller’ for deduction of TDS under section 194Q.

The CBDT has clarified that the Central Government or State Government shall not be considered as ‘seller’. No tax is to be deducted under section 194Q if the seller of goods is Central Government or State Government.

It is also clarified that no such exemption is provided to Public Sector Undertaking (PSU) or Corporation established under the Central or State Act or any other body, authority or entity. They are required to comply with the provisions of section 194Q.

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