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Guideline on TDS/TCS under Section 194O, section 194Q & Section 206C

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 in the present article.

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

Earlier Introduced Guidelines

Earlier vide a circular no. 17 of 2020 dated 29.09.2020, guidelines were issued by the CBDT about the provisions of section 194O and section 206C(1H) of the Income Tax Act in certain cases to remove difficulties and provide clarity for certain transactions. For more details on Guidelines for Section 194-O and Section 206C (1-I) of Income Tax Act, 1961 Further, vide a circular no. 13 of 2021 dated 30.06.2021, guidelines were issued by the CBDT about the provisions of section 194Q of the Income Tax act through which the difficulties arising from the applicability of the provisions of section 194Q in certain cases were removed. In continuation of the above-mentioned circulars, to further remove the difficulties, the CBDT issues the following guidelines under sub-section (4) of section 194O, subsection (3) of section 194Q and sub-section (1I) of section 206C of the Income Tax Act.

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.