Guidelines for Section 194-O and Section 206C (1-I) of Income Tax Act, 1961
Guidelines for Section 194-O and Section 206C (1-I) of Income Tax Act, 1961
Finance Act, 2020 inserted a new section 194-O and sub-section (1H) of section 206C which mandates that with effect from the 1st day of October 2020. After the introduction of new sections, there were several representations for issuing guidelines. Considering this, the Central Board of Direct Taxes (CBDT) has issued the Guidelines for Section 194-O and Section 206C (1-I) of Income Tax Act, 1961 vide a Circular No. 17/2020 dated 29.09.2020 for removing certain difficulties. With this notification, CBDT released a detailed list of tax deducted at source (TDS) or tax collected at source (TCS) provisions for various transactions. The guideline so introduced is explained in the present article.
The Gist of CBDT Notification
With this notification, CBDT announced the TDS under section 194-O on e-commerce participants and TCS under section 206C(1H) on Sale of Goods applicable from 1 October and also clarifies that the threshold limit of sale consideration of Rs. 50 Lakh will be computed inclusive of the GST amount.
Section 194-O (4) of the Income-tax Act
Finance Act, 2020 inserted a new section 194-Oin 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 50 lakh rupees in any previous year to collect tax from the buyer. The sum is equal to 0.1 per cent 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.
Applicability on Transactions Carried through various Exchanges
Considering the practical difficulties in implementing the provisions of TDS and TCS under section 194-O and subsection (1H) of section 206C of the Act, CBDT announced that these provisions will not be applicable for the following transaction.
- Transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation,
Note: It will include recognized stock exchanges or recognized Clearing Corporation located in International Financial Service
- Transactions in electricity, renewable energy certificates, and energy-saving certificates traded through power exchanges registered following Regulation 21 of the Central Electricity Regulatory Commission (CERC)
TDS by Payment Gateway
In e-commerce transactions, the payments are generally facilitated by payment and the section 194-Oof Income-tax Act is applied twice in this transaction:
- On e-main commerce operator who is selling goods or services or both
- On payment gateway who also happens to qualify as an e-commerce operator for facilitating service
For a better understanding look at this simple illustration: A buyer buys goods worth two lakh rupees on the e-commerce website “ABC”. He/she makes payment of two lakh rupees through the digital platform of “XYZ”. On these facts liability to deduct tax under section 194-Omay falls on both “ABC” and “XYZ”.
To remove such difficulty, CBDT announced that the payment gateway will not be required to deduct tax under section 194-O of the Act on a transaction, if the tax has been deducted by the e-commerce operator under section 194-O of the Act, on the same transaction.
Hence, in the above example, if “ABC” has deducted tax under section 194-O on two lakh rupees, “XYZ” will not be required to deduct tax under section 194-O of the Act on the same transaction. To facilitate proper implementation, “XYZ” may take an undertaking from “XYZ” regarding the deduction of tax.
TDS on Insurance Premium
Insurance agent or insurance aggregator having no involvement in transactions between insurance companies and the buyer of insurance policy then he would not be liable to deduct tax under section 194-O.
This relaxation does not apply for the first year and applies from the subsequent years.
TDS on Sale of Motor Vehicle
Receipt of sale consideration from a dealer will be subjected to TCS under section 206C (1H) of the Income Tax Act if such sales are not subjected to TCS under section 206C (1F).
In case of sale to a consumer, receipt of sale consideration for the sale of a motor vehicle of the value of Rs. 10 Lakh or less to a buyer will be subjected to TCS under section 206C(1H) of the act, if the receipt of sale consideration for such vehicles during the previous year exceeds Rs.50 Lakh.
Adjustment for Sale return, Discount or Indirect taxes
No adjustment on account of sale return or discount or indirect taxes including GST is required to be made for the collection of tax under section 206C(I-H) of the Income Act since the collection is made concerning receipt of the amount of sale consideration.
Fuel supplied to Non-resident Airlines
CBDT clarified that the provisions of sub-section (1-H) of section 206C of the Income Tax Act will not apply to the sale consideration received for fuel supplied to non-resident airlines at airports in India.
Calculation of Threshold Limit for the financial year 2020-2021
For section 194-O of the Income Tax Act
Since the threshold of Rs.5 Lakh for an individual/ Hindu undivided family (HUF) is concerning the previous year, calculation of the amount of sale or services or both for triggering deduction under section 194-O will be counted from 01.04.2020
Note: This section is applicable for the Individual/ Hindu undivided family (HUF) who is being an e-commerce participant and who has furnished his PAN/Aadhaar.
For section 206C (1H)
Since sub-section (1H) of section 206C of the Income Tax Act applies on receipt of sale consideration, the provision of this sub-section will apply on all sale considerations (including advance received for sale) received on or after 01.10.2020 even if the sale was carried out before 01.10.2020
- Consequently, it would not apply on any sale consideration received before 01.10.2020
- Since the threshold of Rs. 50 Lakh is concerning the previous year, calculation of receipt of sale consideration for triggering Tax Collection at Source (TCS) under section 206C(1H) will be computed from 01.04.2020.
- Hence, if a person being a seller has already received Rs. 50 Lakh or more up to 30.09.2020 from a buyer, the TCS under section 206C(1H) will not apply on all receipt of sale consideration during the previous year, on or after 01.10.2020, from such buyer.
The CBDT’s notification pertaining to the Guidelines for Section 194-O and Section 206C (1-I) of Income Tax Act, 1961 is as follows:
circular_17_2020