prpri CBDT Guideline on Section 194Q – 12 key takeaways CBDT Guideline on Section 194Q – 12 key takeaways

CBDT issues clarification on section 194Q and interplay of Section 194Q, 206C(1H) AND 194O vide Circular No. 13 of 2021-Income Tax | Dated: 30/06/2021

Thought the clarifications are welcome but are issued at 11th hour. Just to recall, when the TCS provisions u/s 206C(1H) were made applicable from 01st October 2020, similar clarifications were issued on 29th September 2020 vide circular no 17 of 2020.

12 Key takeaways from the CBDT circular are:

1. Transactions in securities and commodities through defined recognised stock exchanges and recognised clearing corporation located in IFSC are exempt u/s 194Q.

2. Transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges are exempt from provisions of section 194Q. 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.

3. Any sum paid/ credited by buyer from 1st April to 30th June 2021(both days inclusive) shall not be counted for tax deduction u/s 194Q.

4. On similar lines of the clarification issued on 29th September 2020 on purchase of goods u/s 206C(1H), similar clarification is addressed on whether to include Gst while tax withholding or no. Its clarified that the TDS under section 194Q should be deducted net of GST, if charged separately. However for section 206C(1H) GST is to be included.

In case, tax is deducted on advance payment or on paid basis, tax has to be withheld on the amount including Gst since at that point of time, it is not possible to segregate the Gst from invoice for goods.

5. In case of purchase return, which happens after TDS has already been deducted u/s 194Q, the extra tds deduction is allowed to be adjusted against future supply of goods by the same seller.

In case the goods are replaced by the seller for the same value, there is no need of any further adjustment. In case of any extra supply of goods or of some higher value than the purchase returned value, extra applicable tds need to be deducted by the buyer.

6. Non-resident without permanent establishment are not covered under the ambit of section 194Q. Thus, no tds deduction on import of goods.

7. 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, the provisions of this sub-section 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.).

The above provisions shall apply only the full income is exempt. The provisions of section 194Q and section 206C(1H) shall apply if only part income is exempt.

8. Further provision of section 194Q not to apply in first year of an entity as no turnover / gross receipts in preceding year since entity was not in existence.

9. Turnover/ Gross receipts of 10 crore of buyer for applicability of this section 194Q will mean Turnover/ Gross receipts in business only/ from business carried on by him. Hence receipts by way of rent, interest , capital gain etc if not considered as business income, are not to be included in calculating the threshold of Rs.10 crores.

10. Hierarchy of section 194O, 194Q and Section 206C(1H) clarified.

If section 194-O is applicable to a transaction then 194Q and 206C(1H) will not apply.

If 194Q is applicable then section 206C(1H) shall not be applicable.

If section 194-O and 194Q are not applicable section 206C(1H) will be applicable.

11. The primary responsibility is on e-commerce operator to deduct the tax under section 194-0 of the Act and that responsibility cannot be condoned if the seller has collected the tax under sub-section (I H) of section 206C of the Act. This is for the reason that the rate of TDS under section 194-0 is higher than rate of TCS under sub-section (I H) of section 206C of the Act.

12. If tax has been collected by the seller under sub-section (I H) of section 206C of the Act, before the buyer could deduct tax under section 194-Q 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.


Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional. 

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One Comment

  1. Sachin Sharma says:

    Hello sir this side sachin, I want to know one thing how to determine the exemption limit , with gst component or without gst components , suppose one bill amount is 19 lakh with gst and another bill amount is 22 lakh with gst before 30.06.2021 and one purchase is done on 1.07.2021 for rs 17 lakh with gst & gst rate is 18% , now how to calculate exemption limit on which amount gst component or without or on which amounts we deduct tds

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July 2021