The most awaited clarification has finally been issued by CBDT vide circular number 13/2021, dated 30th June, 2021. The Finance Act 2021 has widened the scope of the Chapter of TDS by introducing a new section 194Q dealing with TDS on Purchase of goods w.e.f. 1st July 2021. There were too many ambiguities when section 194Q was introduced through Budget 2021 but most of the issues have been resolved by CBDT through this circular. Issues that have been clarified are as under:
Applicability on transactions carried out through various exchanges: -
The provisions of section 194Q shall not be applicable to transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation, including recognized stock exchanges or recognized clearing corporation located in International Financial Service Centre;
The provisions of section 194Q shall not be applicable to transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with Regulation 21 of the CERC; This implies purchase of electricity which has been held as goods by Hon’ble SC are tax deductible u/s 194Q. The manufacturing units or the service providers paying electric bills above Rs.50 lacs purchased by the defined buyers are covered under provisions of section 194Q.
Calculation of threshold for the financial year
2021-22: -
Since section 194Q of the Act mandates buyer to deduct tax on credit of sum in the account of seller or on payment of such sum, whichever earlier, the provision of this sub-section shall not apply on any sum credited or paid before 1st July 2021. If either of the two events had happened before 1st July 2021, that transaction would not be subjected to the provisions of section 194Q of the Act.
Adjustment of GST and purchase returns: -
Since the threshold of fifty lakh rupees is with respect to the previous year calculation of sum for triggering TDS under section 194Q shall be computed from 1st April, 2021. Hence, if a person being buyer has already credited or paid fifty lakh rupees or more up to 30th June 2021 to a seller, the TDS under section 194Q shall apply on all credit or payment during the previous year, on or after 1st July 2021, to such seller.
Accordingly with respect to TDS under section 194Q of the Act, it is clarified that when tax is deducted at the time of credit of amount in the account of seller and in terms of the agreement or contract between the buyer and the seller, the component of GST comprised in the amount payable to the seller is indicated separately, tax shall be deducted under section 194Q of the Act on the amount credited without including such GST. However, if the tax is deducted on payment basis because the payment is earlier than the credit, the tax would be deducted on the whole amount as it is not possible to identity that payment with GST component of the amount to be invoiced in future.
Further, with respect to purchase return it is clarified that the tax is required to be deducted at the time of payment or credit, whichever is earlier. Thus, before purchase return happens, the tax must have already been deducted under section 194Q of the Act on that purchase. If that is the case and against this purchase return the money is refunded by the seller, then this tax deducted may be adjusted against the next purchase against the same seller. No adjustment is required if the purchase return is replaced by the goods by the seller as in that case the purchase on which tax was deducted under section 194Q of the Act has been completed with goods replaced.
Non applicability to non-resident buyer: -
To remove difficulties, it is clarified that the provisions of section 194Q of the Act shall not apply to a non-resident whose purchase of goods from seller resident in India is not effectively connected with the permanent establishment of such non-resident in India. For this purpose, "permanent establishment" shall mean to include a fixed place of business through which the business of the enterprise is wholly or partly carries on.
Applicability when income of seller is exempt from tax: -
To remove difficulty, it is clarified that the provisions of section 194Q of the Act shall not apply on purchase of goods from a person, being a seller, who as a person is exempt from income tax under the Act (like person exempt under section 10) or under any other Act passed by the Parliament (Like RBI Act, ADB Act etc.).
Similarly, with respect to sub-section (1H) of section 206C of the Act, it is clarified that the provisions of this sub-section shall not apply to sale of goods to a person, being buyer, who as a person is exempt from income tax under the Act (like person exempt under section 10) or under any other Act passed by the Parliament (Like RBI Act, ADB Act etc.).
The above
clarifications would not apply if only part of the income of the person (being
a seller or being a buyer, as the case may be) is exempt.
Applicability on advance: -
It is clarified that since the provisions apply on payment or credit whichever is earlier, the provisions of section 194Q of the Act shall apply to advance payment made by the buyer to the seller.
Applicability to buyer in the year of incorporation: -
It is clarified that under section 194Q of the Act a buyer is required to have total sales or gross receipts or turnover from the business carried on by him exceeding ten crore rupees during the financial year immediately preceding the financial year in which the purchase of good is carried out. Since this condition would not be satisfied in the year of incorporation, the provisions of section 194Q of the Act shall not apply in the year of incorporation.
Consider only business turnover: -
It is clarified that for the purposes of section I94Q of the Act, a buyer is required to have total sales or gross receipts or turnover from the business carried on by him exceeding ten crore rupees during the financial year immediately preceding the financial year in which the purchase of good is carried out. Hence, the sales or gross receipts or turnover from business carried on by him must exceed Rs 10 crore. His turnover or receipts from non-business activity is not to be counted for this purpose.
Cross application of section 194O, section 206C(1H) and section 194Q: -
Under sub-section (3) of section 194O of the Act, a transaction in respect of which tax has been deducted by the e-commerce operator under sub-section (I), or which is not liable to deduction under sub-section (2), shall not be liable to tax deduction at source under any other provision of chapter XVII of the Act.
Under second proviso to section 206C(1H) of the Act, provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provisions of this Act on the goods purchased by him from the seller and has deducted such tax.
Under sub-section (5) of section 194Q of the Act, the provision of this section shall not apply to a transaction on which- a) tax is deductible under any of the provisions of this Act; and b) tax is collectible under the provisions of section 206C, other than a transaction on which sub-section (IH) of section 206C applies.
After conjoint reading of all these provisions the following is clarified:
If tax has been deducted by the e-commerce operator on a transaction under section 194O of the Act [including transactions on which tax is not deducted on account of sub-section (2) of section 194O], that transaction shall not be subjected to tax deduction under section 194Q of the Act.
Though sub-section (IH) of section 206C of the Act provides exemption from TCS if the buyer has deducted tax at source on goods purchased by him, to remove difficulties it is clarified that this exemption would also cover a situation where instead of the buyer the e-commerce operator has deducted tax at source on that transaction of sale of goods by seller to buyer through e-commerce operator.
If a transaction is both within the purview of section 194O of the Act as well as section 194Q of the Act, tax is required to be deducted under section 194O of the Act and not under section 194Q of the Act.
Similarly, if a transaction is both within the purview of section 194O of the Act as well as sub-section (IH) of section 206C of the Act, tax is required to be deducted under section 194O of the Act. The transaction shall come out of the purview of subsection (IH) of section 206C of the Act after tax has been deducted by the e-commerce operator on that transaction. Once the e-commerce operator has deducted the tax on a transaction, the seller is not required to collect the tax under sub-section (IH) of section 206C of the Act on the same transaction. It is clarified that here primary responsibility is on e-commerce operator to deduct the tax under section 194O of the Act and that responsibility cannot be condoned if the seller has collected the tax under sub-section (IH) of section 206C of the Act. This is for the reason that the rate of TDS under section 194O is higher than rate of TCS under sub-section (IH) of section 206C of the Act.
If a transaction is both within the purview of section 194Q of the Act as well as sub-section (IH) of section 206C of the Act, the tax is required to be deducted under section 194Q of the Act. The transaction shall come out of the purview of sub-section (1H) of section 206C of the Act after tax has been deducted by the buyer on that transaction. Once the buyer has deducted the tax on a transaction, the seller is not required to collect the tax under sub-section (I H) of section 206C of the Act on the same transaction. However, if, for any reason, tax has been collected by the seller under sub-section (IH) of section 206C of the Act, before the buyer could deduct tax under section 194Q of the Act on the same transaction, such transaction would not be subjected to tax deduction again by the buyer. This concession is provided to remove difficulty, since tax rate of deduction and collection are same in section 194Q and subsection (IH) of section 206C of the Act.
0 Comments