Circular No.13 dated 30th June 2021 issued by Central Board of Direct Taxes gave the Guidelines under Section 194Q of Income Tax Act, 1961. The CBDT Circular also covers the linkage between Sections 194Q, 194-O and 206C(1H).

  • 194-O is tax deduction at source by ecommerce operator, the rate is 1.0% and it has come into effect from 1st October 2020.
  • 194Q is tax deduction at source by buyer of goods from the payments made to sellers, rate is 0.1% and it has come into effect from 1st July 2021.
  • 206C(1H) is tax collection at source by seller of goods from the buyers, rate is 0.1% and it has come into effect from 1st October 2020.

It is quite clear from the circular that Only one Section can be applicable on any transaction.

What will happen in case the aforesaid three sections are applicable on a transaction one good example is PAN India Tea Auctions conducted by Tea Board of India.

Tea Board is an E-Commerce Operator in the Auction Process

Sellers, Auctioneers and Buyers are parties in the auction process.

Prior to Sec 194 Q in the Auction Process Tea Board used to deduct TDS u/s 194 O being an e-commerce operator from the participants

AND Sellers used to charge TCS u/s 206C(1H) on the ultimate buyers

After the advent of Sec 194 Q there was a confusion initially which is now quite clear after this circular.

Let us read the aforesaid sections to understand wherein the act it specifies that only one section would apply:-

Section 194Q (5) states that no TDS shall be deducted if

(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

So prima facie it seems that Sec 194 Q continues to apply even if Sec 206C(1H) is applicable but now let us read

Sec 206 C(1H) second proviso which states that TCS under this provision shall not be collected if the transaction is covered under any other provision of the Act.

So a conjoint reading of both the sections leads us to the conclusion that Sec 194 Q over-rides and would apply and the liability is on the buyer to deduct tax.

Now if we read Sec 194 O there is no exclusion which leads us to the conclusion that if a transaction suffers from applicability of Sec 194O, 194Q and 206C(1H), Sec 194 O would apply and the other two sections would cease to apply as Sec 194 Q (5) (a) specifically states that if TDS is applicable under any other provisions of the act (herein Sec 194 O is applicable) Sec 194 Q will not apply.

Its quite understandable that government would be eager to collect Tax @ 1% rather than 0.1%

So Now :

1) 194-O is applicable in Pan India Tea Auctions and Tea Board is responsible for deducting tax at source under 194-O from the payments made to sellers and brokers.

2) 194Q is not applicable in Pan India Auctions as Tea Board is deducting tax at source under 194-O.

3) With effect from 1st July 2021, 206C(1H) is also not applicable in Pan India Auctions

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Experienced Tax professional with proven expertise in Indirect tax, Direct Taxes, Transfer Pricing and International Tax litigations and compliances. Member of Direct and Indirect Tax Committee in Bengal Chamber of Commerce, Member of Indirect Tax Expert Committee in Bangalore Chamber of Commerce, View Full Profile

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September 2021