Summary of the Circular No. 13 of 2021 dated 30th June, 2021 regarding Section 194Q
After the introduction of sub section (IH) of section 206C levying collection of TCS on sales above prescribed limits by specified seller w.e.f from 01.10.2021 the Central Board of Direct Taxes hereby brings another section for widening the scope of TDS “Section 194Q: Deduction of tax at source on payment of certain sum for purchase of goods”
With the introduction of new section came number of complications and confusions. And then came CBDT with new set of guidelines and clarifications to save stakeholders. Accordingly, section 194Q along with the extracts of the guidelines has been produced below for early reference.
Section 194Q: Deduction of tax at source on payment of certain sum for purchase of goods
(1) Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent of such sum exceeding fifty lakh rupees as income-tax.
Explanation.—For the purposes of this sub-section, “buyer” means a person whose total sales, 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, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
(2) Where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
(3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
(4) Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and the person liable to deduct tax.
(5) The provisions 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 to which sub-section (1H) of section 206C applies.]
CBDT vide its Circular No. 13 of 2021 dated 30th of June 2021 brought out guidelines for the applicability of the Section 194Q of the Income Tax Act, 1961, summary of which is produced below:
1) Non Applicability of Section 194Q:
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.
Transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with Regulation 21 of the CERC;
2) TDS u/s 194Q shall be deducted on the taxable value i.e. exclusive of GST component. (Ref: Circular No 23 of 2017 dated 19th July 2017). However, on the amount paid as advance, TDS shall be deducted on entire amount since GST component cannot be separately identified.
Note: TCS u/s 206C(IH) is to be collected on the receipt value i.e. inclusive of GST component.
3) TDS u/s 194Q can be adjusted for the purchase return over the amount of consideration received from the seller. Excess TDS deducted over said purchase can be adjusted with next purchase.
4) 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.
5) 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, section 206C(IH) shall not apply to sale of goods to a person, being a 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.).
Note: For non applicability of section 194Q or 206C(IH), entire income of the seller/buyer shall be exempt not just a part of the total income.
6) Section 194Q shall also be applicable on advance payment since section 194Q applies on payment or credit whichever is earlier.
7) Section 194Q shall not apply for the buyer in the first year of incorporation since 194Q applies only if turnover in the previous year exceeds 10 crore. In the first year of incorporation, there shall be no turnover in the previous year.
8) Cross application of section 194-0, sub-section (lH) of section 206C and section 194Q of the Act:
- If the transaction falls under the purview of section 194O it shall not be subject to TDS u/s 194Q or 206C(IH).
- 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 (I H) of section 206C of the Act, tax is required to be deducted under section 194O of the Act.
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