Guidelines under sub section 4 of section 194 o sub section 3 of section 194Q and sub section 1 i of section 206C of the income tax act 1961
Circular No. 20/2021 was issued by the Central Board of Direct Taxes on 25 November 2021. Its subject is Guidelines under sub section 4 of section 194 o sub section 3 of section 194Q and sub section 1 i of section 206C of the income tax act 1961.
These are guidelines issued under a power in the section itself. Where a section says the Board may issue guidelines and that they bind, the guidelines carry more weight than an ordinary circular — read the enabling words before deciding which kind this is.
Issues a further set of guidelines under sub-section (4) of section 194-O, sub-section (3) of section 194Q and sub-section (1H) of section 206C to remove difficulties, continuing the guidance already given in Circular No. 17 of 2020 dated 29 September 2020 and Circular No. 13 of 2021 dated 30 June 2021. The circular restates the three charges it is dealing with: an e-commerce operator deducts one per cent of the gross amount of sale of goods or provision of services facilitated through its platform from 1 October 2020, at credit or payment whichever is earlier; a seller with turnover above ten crore rupees in the preceding financial year collects 0.1 per cent of sale consideration above fifty lakh rupees in a previous year, on receipt; and a buyer with turnover above ten crore rupees in the preceding financial year deducts 0.1 per cent of a sum above fifty lakh rupees paid to a resident seller for purchase of goods, from 1 July 2021. The first guideline it takes up is the treatment of e-auction services carried out through an electronic portal, on representations from e-auctioneers.
Representations were received from stakeholders, including those carrying on e-auction services through their own electronic portals, and the Board issued the guidelines with the approval of the Central Government to remove the difficulties.
F. No.370142fS6/2021-TPL
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
(TPL Division)
****
Circular No. 20 of 2021
Dated 25th November, 2021
Subject: Guidelines under sub-section (4) of section 194-0, sub-section (3) of section 194Q and subsection (I-I) of section 206C of tile Income-tax Act, 1961 - reg.
Finance Act, 2020 inselted a new secti on 194-0 in the Income-tax Act 196 1 (here inafter referred
to as " the Act") which mandates that with elTect from 1st day of October, 2020, an e-commerce operator
shall ded uct income-tax at th e rate of one per cent of the gross amount of sa le of goods or provision of
services or both, fac ilitated through its digital or electronic fac ility or platform. However, exemption from
the sa id deduction has been provided in case of certain indi viduals or Hindu undivided fam il y subject to
fu lfilment of spec ified conditions. This deduction is required to be made at the time of cred it of the
amount of such sa le or se rvice or both to the account of an e-commerce parti cipant or at the time of
payment thereof to such e-COmmerce participant, whicheve r is earlier.
2. Finance Act, 2020 also inserted sub-section ( 11-1 ) in section 206C of the Act which mandates that
with effect from 1" day of October, 2020 a se ll er receiving an amount as consideration for sa le of any
goods of the va lue or aggregate of such va lue exceed ing fifty lakh ru pees in any previous year shall
collect from the buye r, a sum eq ua l to 0. 1 per cent of the sale consideration exceeding fifty lakh rupees
as income-tax. The collection is req uired to be made at the time of recei pt of amount of sa le
consideration. Seller is defined as the person whose tota l sa les or gross receipts or turnover from the
business ca rri ed on by him exceed ten crore rupees durin g th e fi nancial yea r immedi ately preced ing the
financial year in wh ich the sale of good is carried out. Central Gove rnment has been authorised to specify
by notification in the Offic ial Gazette, the pe rso n who wo uld not be considered as se ller for the purposes
of this section, subj ect to the fulfillment of certain conditions as specified therein.
3. Finance Act, 202 1 inserted a new secti on 194Q to the Act wh ich took effect from 1st day of Ju ly,
202 1. It applies to any buyer who is responsible fo r paying any sum to any resident se lle r fo r purchase of
any goods orthe va lue or aggregate of va lue exceeding fifty lak h rupees in any previous year. The buyer,
at the time of credit of such sum to the account of the se ll er or at the time of payment, whi chever is
earl ier, is req uired to deduct an amount equa l to 0. 1 % of such SUm exceedin g fifty lakh rupees as income
tax. Buyer is defined to be person whose tota l sales or gross rece ipts or turnover from the busi ness
carried on by him exceed ten crore rupees during the financial year immediately preceding th e fi nancial
yea r in which the purchase of goods is carri ed out. Central Government has been authorised to specify by
notifi cation in the Offic ial Gazette, person who would not be considered as buyer fo r the purposes of this
secti on, subject to ful fillment of spec ifi ed conditions.
4. Sub-section (4) of secti on 194-0, sub-section (3) of section 194Q and sub-secti on ( I-I) of section
206C of the Act empowers the Board (with the approva l of the Central Gove rnment) to issue guidel ines
for the purpose of removing diffi culties.
4.1 In this regard, vide circular no. 17 of2020 dated 29.09.2020, guide li nes were issued by the Board
(with the approva l of the Central Government) in relation to the provisions of section 194-0 and section
206C( 1 H) of the Act in certain cases to remove difficulti es and prov ide clarity for certain transactions.
4.2 Furthe r, vide circul ar no. 13 of 202 1 dated 30.06.202 1, guide lines we re issued by the Board in
relation to the provisions of section 194Q of the Act through wh ich the diffic ulti es arising from the
app licability of the provisions of section 194Q in certa in cases were removed. Fu rthermore, gu idel ines
with respect to the cross appl ication of the provisions of sections 194-0, 194Q and 206C ( I H) of the Act
were a lso issued through the sa id circu lar.
4.3 In continuation of the above, to furt her remove the difficu lties, the Boa rd, with the approva l of the
Central Government, hereby issues the followin g gu idel ines under sub-section (4) of section 194-0, subsection (3) of section 194Q and sub-section (I-I) of section 206C of the Act.
5. Guidelines
5.1 E-auction services carried out through electronic portal:
5.1.1 Representations have been received from various stakeholders invo lved in the business of
carrying out e-auctio n services through electroni c pOlta l owned, operated or ma intained by them
(hereinafter refe rred as 'e-auctioneer'). It has been stated that in an e-auction, the e-auctioneer invo lved in
conducting the e-auction through its pOltal is responsi ble only for the price discovery for the
sa le/purchase of goods o r services and the result of the auction report is submitted to the client. The client
could be the buyer or the se lle r. Palticipants in the auctions are se llers (if cl ient is buye r) or buyers (if
client is se ller). The transaction of sa le/ purchase is being carri ed out directly between the buyer and the
se ll er which are not done through the electron ic portal of the e-auctioneer. Furthe r, the price so
discovered can be further negotiated between the pa rties without the knowledge of the e-auctioneer. In
such a scenario, it has been represented that provisions of section 194-0 of the Act does not apply as the
transaction of sale/purchase itsel f is not tak ing place through the electron ic portal.
5.1.2 From the representations made, the fo ll owing facts have been noticed:
(a) The e-a ucti oneer conducts e-auction services for its cli ents in its e lectroni c p0l1al and is
responsible for the price discovery only wh ich is reported to the cli ent.
(b) The price so d iscove red thro ugh e-auction process is not necessaril y the price at which the
transaction takes place and it is up to the discretion of the client to accept the price or to directly
negotiate with the counter-party.
(c) The transaction of purchase/sa le takes place directly between the buyer and the se ll er party
o utside the electronic porta l mai nta ined by the e-a uctioneer and price discovery onl y acts as the
starting point for negotiation and conclusion of purchase/sa le.
(d) The e-auctioneer is not responsible for facilitat ing the purchase and sa le of goods for which eauction was conducted on its electronic porta l except to the extent of price discovery.
(e) Payments for the transactions are ca rri ed out directly between the buyer and the se ller outside the
electronic portal and the e-auctioneer does not have any information abo ut the quantum and the
schedule of payment whi ch is decided mutually by the cli ent and the counterparty.
(f) For payment made to e-auctioneer for providing e-auction services, the client deducts tax under
the re levant provisions of the Act other than section 194-0 of the Act.
5.1.3 In orde r to remove difficulty, it is clarified that the provisions of section 194-0 of the Act sha ll
not apply in relation to e-auction activities carried out bye-auctioneers ifall the facts listed at (a) to (f) of
para 5.1.2 are satisfied . This cla rifi cation shall not apply if any of these facts are not satisfied. Further, it
is clarified that the buyer and seller wou ld still be liable to deduct/ collect tax as per the provisions of
section 194Q and 206C (I H) of the Act, as the case may be.
5.2 Adjustment of various state levies and taxes other than GST
5.2.1 In Para 4.3.2 of circular no. 13 of 202 1 dated 30.06.202 1, it has been provided that in case the
GST component has been indicated sepa rately in the invoice and tax is deducted at the time of cred it of
the amount in the account of the se ll er, then the tax is to be deducted under section 194Q of the Act on the
amount credited without including such GST. It has been further provided that in case the tax is deducted
on payment basis 'as the payment is earlier than the credit, the tax is to be deducted on the whole amount
as it is not possible to identify that payment with GST component of the amount to be invoiced in future.
Further, adjustment of tax deducted in case of purchase retu rn has also been provided.
5.2.2 It has been represented that in case of goods wh ich are not within the purview of GST, such as
petroleum products, various levies like VAT, Excise duty, sa les tax etc. are charged. While the treatment
of GST component has been clarified in the circu lar no. 13 of 2021, the same is sil ent on other non-GST
levies whi ch have otherwise been subsumed and replaced by GST.
5.2.3 In this regard, it is hereby clarified that in case of purchase of goods which are not covered within
the purview of GST, when tax is deducted at the time of credit of amount in the account of se ller and in
terms of the agreement or contract between the buyer and the se ll er, the component of VAT/Sales
tax/Excise duty/CST, as the case may be, has been indicated separately in the invoice, then the tax is to be
deducted under section 194Q of the Act on the amount credited without including such VAT/Excise
duty/Sales tax/CST, as the case may be. However, if the tax is deducted on payment basis, if it is earlier
than the credit, the tax is to be deducted on the whole amount as it will not be possible to identify the
payment with VAT/Excise duty/Sales tax/CST component to be invoiced in the future . Furthermore, in
case of purchase returns, the clarification as provided in Para 4.3.3 of circular no. 13 of 2021 sha ll also
apply to purchase return relating to non GST products liable to VAT/excise duty/sa les taxi CST etc.
5.3 Applicability of section 194Q of the Act in cases where exemption has been provided lInder
section 206C (1 A) of the Act
5.3.1 Sub-section (I A) of scction 206C of the Act provides that notwithstanding anyth ing contained in
sub-section (I) of the said section, no tax is to be coll ected in case ofa buyer, who is a resident in India, if
such buyer furnishes to the person responsible for collecting tax, a declaration to the effect that the goods
(as referred to in sub-section (I)) are to be utilized for the purposes of manufacturing, processing or
producing articles or things or for the purposes of generation of power and not for trading purposes.
5.3.2 As per the provisions of sub-secti on (I H) of section 206C of the Act, tax is to be collected in
respect of sa le of goods other than the goods which have not been covered unde r sub-section (I) or subsection (I F) or sub-section ( I G). It has been represe nted that in case of goods which are covered under
the provisions of sub-section ( I) of the sa id section but exempted unde r sub-section (IA), tax will not be
coll ectible under either sub-secti on ( I) or sub-section ( I H) of secti on 206C as the provisions of subsection (I H) catego ri ca ll y exclude the goods which are covered under sub-secti on ( I) of section 206C. It
has been requested to clarify if the provisions of secti on 194Q of the Act will be app li cable in such cases.
5.3.3 The issue has been examined. It is seen that the prov isions of section 194Q of the Act does not
appl y in respect to those tra nsactions where tax is collectible unde r section 206C [except sub-section ( I H)
th ereofJ of the Act. Since by virtue of sub-section ( IA) of section 206C of the Act, the tax is not required
to be collected for goods covered under sub-section ( I) of the sa id sec ti on, it is hereby clarified that in
such cases, the provisions of section 194Q of the Act wi ll apply and the buye r sha ll be li ab le to deduct tax
under the said secti on if the conditions spec ified therein are fulfi ll ed.
5.4 Applicability of the provisions of section 194Q in case of department of Government not
being a public sector undertaking or corporation
5.4.1 There have been representations from department of the Gove rnment (both Central Government
and State Government), to enquire if such department is requ ired to deduct tax under the provisions of
secti on 194Q of the Act.
5.4.2 As per the provisions of section 194Q, tax is to be deducted by a person, being a buye r, whose
tota l sa les, gross rece ipts or turnover fro m business ca rri ed on by that pe rso n exceed ten cro re rupees
during the financi al year immediately preceding the financial year in which the goods are purchased by
such person. Thus, for a person to be considered as a buyer for the purposes of section 194Q of the Act,
following conditions a re required to be fulfilled:
(a) Such person shall be carryi ng out a business/ commercial activity;
(b) The total sa les, gross receipts or turnover from such business/ commerc ial activity shall be more
than Rs. 10 cro re duri ng the financi al year immediately preced ing the financial year in which goods are
being purchased by such pe rson.
In case of any Department of the Government whi ch is not carryi ng out any business or commerc ial
activity, the primary requirement for be ing considered as a 'buyer' will not be fulfi ll ed. Accordingly, such
an organi zation wi ll not be considered as 'buyer' fo r the purposes of section 194Q of the Act and will not
be li ab le to deduct tax on the goods so purchased by them. Howeve r, if the sa id department is carrying on
a business/commercial activity, the prov ision of secti on 194Q of the Act sha ll apply subj ect to the
fulfillment of othe r cond itions.
5.4.3 Issue has been raised in case where any department of the Government will be considered as a
'sell er' for the purposes of deduction of tax under secti on 194Q of the Act. In this regard, it is hereby
clarified that for the pu rposes of secti on 194Q, Central Gove rnment or State Government shall not be
considered as 'sell er' and no tax is to be ded ucted by the buyer, in cases whe re any Department of Central
or State Government are se ll er of goods.
5.4.4 In co nnection with above, it is further clarifi ed that any other person, such as a Public sector
Undertaking or corporati on establ ished under Centra l or Stale Act or any other such body, authority or
entity, sha ll be required to comply with the provisions o f secti on 194Q and tax shall be deducted
accordingly.
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Under Secreta ry to the Govt. of India
Copy to:
I. PS to FMI OSD to FMI PS to MoS(F)/ OSD to MoS(F)
2. PPS to Sec retary (Revenue)
3. Cha irman, CBDT & All Members, CBDT
4. All Pr. DGslTI Pr. CCslT
5. All Jo int Secretariesl Cs lTI Directors/ Deputy Secretari es/ Under Sec retaries ofCBDT
6. The C&AG of Ind ia
7. The JS & Legal Adviser, Min istry of Law & Justice, New Delhi
8. CIT (M&TP), Official Spokesperson of CBDT
9. 0 10 Pro DG IT (Systems) for upl oading on official website.
10. Je IT (Database Cell) for up load ing on www. irsofficersonline.gov.in
On a demand for short deduction or short collection under section 194-O, section 194Q or sub-section (1H) of section 206C, or when settling which of the three provisions governs a platform transaction.
It mentions. Circular No. 13/2021, Circular No. 17/2020, Circular No. 20/2021
Source: the Income Tax Department’s own published text — its page for this instrument.
