Guidelines under section 194Q of the Income-tax Act- CBDT Circular No. 13 of 2021 dated 30th June, 2021

The Central Board of Direct Taxes (CBDT) on 30^th June 2021 has issued circular 13/2021 which provides clarifications on applicability of provisions of Sec. 194Q. The guidelines provide clarity on applicability of section 194Q on transactions carried out through recognised stock exchanges, clearing corporations, transactions with non-residents, advance payments, interplay with section 206C(1H) and section 194O and many more.

The new section 194Q was inserted vide Finance Act, 2021 in the Income-tax Act 1961 which takes effect from 1^st day of July, 2021. It applies to any buyer who is responsible for paying any sum to any resident seller for purchase of any goods of the value or aggregate of value exceeding fifty 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 payment, whichever is earlier, is required to deduct an amount equal to 0.1 % of such sum exceeding fifty lakh rupees as income tax.

Our alert mail dated 13.05.2021 explained the provisions of the new section and we have also included frequently asked questions (FAQs) with respect to its applicability based on our understanding of the section at that time. You may click here to access our note published on 13.05.2021. It is to be noted that the CBDT has now brought out clarifications to many confusions creeped in the minds of the taxpayers and the circular will prevail over our FAQs published earlier in case of any contradictory views.

CBDT Circular No. 13 of 2021 dated 30^th June, 2021 provides the following clarifications on the applicability of section 194Q:

1. Section 194Q not to apply on transactions in securities and commodities carried out through recognised stock exchanges or cleared and settled by recognised clearing corporations including those located in International Financial Service Centre (IFSC).
2. Section 194Q not to apply on transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges.
3. Clarification is given that 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 1^st April, 2021.
4. It is also clarified that section 194Q will not be applicable to cases where buyer has either credited or paid the amount to the seller before July 01, 2021.
5. Wherein amount is credited to the seller’s account, and in terms of the agreement/ contract between the buyer and seller, the GST component is indicated separately; TDS u/s 194Q to be made on the amount credited without including GST.
6. Wherein TDS u/s 194Q is made on payment to the seller, because payment is earlier than credit, TDS has to be made on the whole amount.
7. Since TDS u/s 194Q is made at the time of payment or credit whichever is earlier, tax would have been already deducted on purchase return, in which case if the money is refunded by the seller, then the amount of TDS made may be adjusted against next purchase from the same seller.
8. No adjustment will be required if the purchase return is replaced by goods, by the seller.
9. The provisions of section 194Q 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.
10. Section 194Q is not applicable in the cases where the seller’s income is entirely tax exempt and would apply where seller’s income is only partly exempt. Similarly, 206C(1H) would not apply to buyers who are exempt from income-tax. E.g., entities/individuals having only agricultural income or entities passed under special laws like RBI Act, ADB Act etc.
11. Section 194Q applies on payment or credit whichever is earlier and would thus, apply on advance payments too.
12. Section 194Q not to apply in the year of incorporation of the buyer as buyer is required to have gross receipts or turnover in excess of Rs.10 Cr. in the financial year immediately preceding the financial year in which the transaction takes place.
13. Section 194Q to apply only on the gross receipts or turnover from the business carried out by the buyer exceeds Rs.10 Cr. in the financial year immediately preceding the financial year in which the transaction takes place and not to include the turnover from non-business activities.
14. If a transaction is both within the purview of section 194O as well as section 194Q, tax is required to be deducted under section 194-O and not under section 194Q. TDS under section 194O is applicable on payment of certain sums by e-commerce operator to e-commerce participant where sale of goods/ provision of services of an e-commerce participant is facilitated by an e-commerce operator through its digital or electronic facility/ platform.
15. If a transaction is both within the purview of section 194-O as well as u/s 206C(1H), tax is required to be deducted under section 194-O.
16. If a transaction is both within the purview of section 194-Q as well as u/s 206C(1H), the tax is required to be deducted under section 194-Q.
17. Once the buyer has deducted the tax on a transaction, the seller is not required to collect the tax u/s 206C(1H) on the same transaction.
18. If, for any reason, tax has been collected by the seller u/s 206C(1H), before the buyer could deduct tax under section 194-Q on the same transaction, such transaction would not be subjected to tax deduction again by the buyer.

 

The copy of the circular is attached herewith for your quick reference.  Click here to read the circular.