TDS/TCS Guideline under Section 194O, Section 194Q, and Section 206C

For the purpose of resolving some obstacles, the Central Board of Direct Taxes (CBDT) published further Guidelines for Sections 194-O, 194Q, and 206C (1-I) of the Income Tax Act, 1961 via Circular No. 20/2021 dated November 25, 2021. Sections 194-O, 194Q, and 206C(1H) of the Income-tax Act have been added to the Finance Acts of 2020 and 2021, requiring the deduction and collection of tax at source on specific transactions. The TDS/TCS guideline under Section 194O, Section 194Q, and Section 206C is as follows.

Section 194-O (4) of the Income-tax Act

Finance Act, 2020 added a new section 194-O to the Income-tax Act 1961, requiring an e-commerce operator to deduct income tax at a rate of 1% of the gross amount of goods or services provided, or both, facilitated through its digital or electronic facility or platform.

1. Tax deduction exemption has been granted to specific people or Hindu undivided families who meet certain criteria.
2. This deduction must be done either when the amount of the sale or service is credited to an e-commerce participant’s account or when the e-commerce participant is paid, whichever comes first.

The Income-tax Act, Section 206C (1H)

In addition, the Finance Act of 2020 added sub-section (1 H) to section 206C of the Act, which requires a seller who receives an amount as consideration for the sale of any items with a value or aggregate worth of more than Rs.50 lakh rupees in any preceding year to collect tax from the buyer. As income tax, the amount is equal to 0.1 percent of the sale consideration over 50 lakh rupees.

The collection must be done at the time the amount of the sales consideration is received.

‘A seller is defined as a person whose total sales, gross earnings, or turnover from his business exceed Rs.10 crore rupees in the financial year immediately preceding the financial year in which the sale of a good is made.’

Income Tax Act, Section 194Q

The Income Tax Act was amended by the Finance Act of 2021, which added a new section 194Q. It applies to any buyer who owes any payment to a resident seller for the acquisition of goods worth more than Rs.50 lakh rupees in the preceding year.

The buyer is obligated to deduct an amount equal to 0.1 percent of the amount exceeding fifty lakh rupees as income tax at the time of crediting such sum to the seller’s account or at the time of whichever is earlier.

A buyer is defined as a person whose total sales, gross receipts, or turnover from his business exceeded 10 crore rupees in the financial year immediately preceding the financial year in which the products are purchased.

TDS Provisions under Section 194-O Applicability

E-auction services delivered through an online portal

Every e commerce operator who facilitates the sale of goods or provision of services by an e-commerce participant through its digital or electronic facility or platform is required to deduct tax at source under Section 194-O in the case of purchases made through an electronic platform.

1. In an e-auction, the e-auctioneer is solely responsible for price discovery; the purchase and sale transactions are handled directly by the buyer and seller.
2. In addition, the price identified can be negotiated between parties without the e-awareness. auctioneer’s

As a result, the CBDT has clarified that if the necessary circumstances are met, section 194-O does not apply to e-auction operations carried out by e-auctioneers.

The CBDT further emphasised that under the requirements of sections 194Q and 206C (1H) of the Income Tax Act, the buyer and seller are still required to deduct/collect tax.

TDS provisions under Section 194Q are applicable.

Other than GST, numerous state levies and taxes will be adjusted.

Any buyer who is responsible for paying any amount to a resident seller for the acquisition of any items with a value or aggregate worth of more than Rs. 50 lakhs in any prior year is subject to a tax deduction under Section 194Q.

The CBDT stated in Circular 13 of 2021, dated June 30, 2021, that if the GST component is indicated separately in the invoice, tax is only to be deducted under section 194Q on the amount credited in the seller’s account, excluding GST. However, other non-GST fees such as VAT, excise duty, CST, and so on are not covered in detail in Circular 13 of 2021.

The CBDT has now stated that if the VAT, sales tax, excise duty, CST, and other components of the invoice are individually indicated in the invoice, TDS under section 194Q is to be deducted without include such amounts.

Applicability of section 194Q of the Act in circumstances where an exception under section 206C (1 A) of the Act has been granted

If the amount received as consideration for the sale of goods exceeds Rs. 50 lakhs in any prior year, Section 206C (1H) allows a seller to collect tax (TCS).

Section 206C additionally states that no tax will be levied on products covered by subparagraphs (1), (1F), or (2). (1G).

Furthermore, section 206C(1A) states that the seller is exempt from collecting tax (TCS) from a resident buyer who has filed a declaration stating that the goods were purchased for the purpose of manufacturing, processing, or producing articles or things, or for the generation of electricity, rather than for trading. Given the foregoing, it has been suggested that no TCS would be recoverable for goods included under sub-section (1) but exempted under sub-section (1A), as section 206C(1H) categorically excludes goods covered under sub-section (1) but exempted under sub-section (1A) (1).

Except for sub-section (1H) of section 206C, the provisions of section 194Q do not apply to transactions where tax is collected. Because tax is not needed to be collected on items covered under sub-section (1) under section 206(1A), the CBDT has stated that section 194Q will apply, and the buyer will be liable to deduct tax if certain requirements are met.

When a department of government is not a public sector undertaking or corporation, the provisions of section 194Q apply.

A government department that does not engage in any commercial or business activity is not considered a ‘buyer’ under section 194Q. As a result, such businesses are not obligated to deduct TDS on products they acquire.

The CBDT has stated that neither the federal nor state governments are considered’sellers.’ If the seller of goods is the Central Government or a State Government, no tax is to be deducted under section 194Q.

Any other person, such as a Public Sector Undertaking or corporation constituted under a Central or State Act, or any other such body, authority, or institution, must comply with the terms of section 194Q, and tax will be deducted appropriately, according to the CBDT.