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
November, 27th 2021
Circular No. 20 of 2021
Government of India Ministry of Finance Dated 25th November, 2021
Department of Revenue Central Board of Direct Taxes
Subject: G uid elines under sub-section (4) of section 194-0, sub-section (3) of section 194Q and sub- section (I-I) of section 206C of tile Income-tax Act, 1961 - reg.
Finance Act, 2020 in selted a new secti on 194-0 in the Income-tax Act 196 1 (here inafter referred to as " the Act") w hich mandates that w ith elTect from 1st day of October, 2020, an e-com merce operator sha ll ded uct income-tax at th e rate of one per cent of the gross amount of sa le of goods or prov ision of services or both , fac ilitated through its d igita l or e lectronic fac ility or platform. However, exempti on from the sa id deduction has been provided in case of certain indi vidual s or Hindu undivided fam il y subject to fu lfilment of spec ified conditi ons. This deduct ion 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 c ipant or at the time of payment thereof to such e-COmmerce participant, whicheve r is earlier.
2. Finance Act, 2020 al so inserted sub-section ( 11-1 ) in section 206C of the Act which mandates that
w ith effect from I" 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 suc h va lue exceed ing fifty lakh ru pees in any prev ious year sha ll
co llect from the buye r, a sum eq ua l to 0. 1 per cent of the sale cons iderat ion exceed ing fifty lakh rupees
as income-tax. T he co llecti on is req uired to be made at the time of recei pt of amount of sa le
consideration. Sel ler is defined as the person whose tota l sa les or gross receipts or turnover fro m the
business ca rri ed on by him exceed ten crore rupees durin g th e fi nanc ial yea r immedi ate ly preced ing the
financial year in wh ich the sale of good is carried out. Central Gove rnment has been authorised to specify
by not ification in the Offic ia l Gazette, the pe rso n who wo uld not be co nsidered as se ller for the purposes
of this sect ion, subj ect to the fulfillment of certain conditi ons as specified therein.
3. Finance Act, 202 1 in serted a new secti on 194Q to the Act wh ich took effect from 1st day of Ju ly,
202 1. It a pplies to any buyer who is respon sible fo r paying any sum to any res ident se lle r fo r purchase of
any goods orthe va lue or agg regate of va lue exceeding fifty lak h rupees in any prev ious year. The buyer,
at the tim e 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 exceed in g fifty lakh rupees as income
tax. Buyer is defined to be person whose tota l sa les or gross rece ipts or turnover from the busi ness
carried on by him exceed ten crore rupees during the financial year immed iate ly preceding th e fi nancial
yea r in which the purchase of goods is carri ed out. Centra l Government has been authori sed to specify by
notifi cat ion in the Offic ia l 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 conditi ons. 4. Sub-sect ion (4) of secti on 194-0, sub-section (3) of sect ion 194Q and sub-secti on ( I-I ) of sect ion
206C of the Act empowers the Board (w ith the approva l o f the Ce ntra l Gove rnment) to issue guidel ines
for the purpose of re moving d iffi cult ies.
4.1 In this regard , vide c irc ular no. 17 of2020 dated 29.09.2020, guide li nes were issued by the Board (with the ap prova l of the Centra l Government) in relation to the provisi ons of section 194-0 and section 206C( 1H) of the Act in certain cases to remove diffic ulti es and prov ide c larity for certain transactions.
4.2 Furthe r, vide c ircul ar no. 13 of 202 1 dated 30.06.202 1, guide lines we re issued by the Board in re lation to the provisi ons of section 194Q of the Act through wh ich the d iffic ulti es arising from the app licability of the provis ions of section 194Q in certa in cases were removed. Fu rthermore, gu idel ines with respect to the cross appl ication of the provi sions of sections 194-0, 194Q a nd 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 lt ies, the Boa rd, w ith the ap prova l of the Ce ntral Government, hereby issues the followin g gu idel ines under sub-section (4) of section 194-0, sub- section (3) of section 194Q and sub-sect ion (I- I) of sect ion 206C of the Act.
5.1 E-a uction services carried out through electronic portal:
5.1.1 Representat ions have been received from various stakeho lders invo lved in the business of carrying out e-auct io n services through electroni c pOlta l owned , operated or ma intained by them (hereinafter refe rred as 'e-aucti oneer' ). It has been stated that in an e-auct ion, the e-auct ioneer invo lved in conducting the e-auct ion through its pOltal is responsi ble only for the price di scovery for the sa le/ purchase of goods o r serv ices and the result of the auction report is submitted to the c lient. 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 tran saction of sa le/ purchase is being carri ed out d irectly between the buyer and the se ll er which are not done through the e lectron ic porta l of the e-auct ioneer. Furthe r, the price so discovered can be further negotiated between the pa rties without the knowledge of the e -auct ioneer. 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 e lectron ic portal.
5.1.2 From the rep resentations made, the fo ll ow ing facts have been not iced:
(a) The e-a ucti oneer co nducts e-auct ion services for its c li ents in its e lectroni c p0l1al and is responsible for the price d iscovery only wh ich is reported to the c li ent.
(b) T he price so d iscove red thro ugh e-auct ion process is not necessaril y the price at which the tran sact ion takes place and it is up to the discret ion of the c lient to accept the price or to directly negotiate with the counter-party.
(c) T he tran saction of purchase/sa le takes place directly between the buyer and the se ll er party o utside the e lectronic porta l mai nta ined by the e-a ucti oneer and price discovery onl y acts as the starting point for negotiat ion a nd concl usion of purchase/sa le.
(d) T he e-auctioneer is not responsible for facilitat ing the purchase and sa le of goods for which e- auction was conducted on its e lectronic 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 outs ide the electronic portal and the e-auctioneer does not have any information abo ut the quantum and the schedule of payment w hi ch is decided mutually by the c li 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-auctio n activit ies carried out bye-auctioneers ifall the facts li sted 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 st ill be liable to deduct/ collect tax as per the provisions of sect ion 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 sect ion 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 who le 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 lev ies w hi ch have otherw ise 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 with in the purview of GST, w hen 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 co mponent 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 sect ion 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 ident ify 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 c ircular 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 co ll 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 generat ion of power and not for trading purposes. 5.3.2 As per the prov isions of sub-secti on ( I H) of section 206C of the Act, tax is to be co llected in respect of sa le of goods other than the goods which have not been covered unde r sub-section (I) or sub- section (I F) or sub-section ( IG). It has been represe nted that in case of goods which are covered under the prov isions of sub-section ( I) of the sa id section but exe mpted unde r sub-sect ion (IA), tax will not be co ll ectib le under e ith er sub-secti on ( I) or sub-secti on ( IH) of secti on 206C as the prov isions of sub- secti on (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 prov isions of secti on 194Q of the Act will be app li cab le in such cases .
5.3.3 The issue has been exam ined . It is seen that the prov isions of sectio n 194Q of the Act does not appl y in respect to those tra nsact ions where tax is collectible unde r section 206C [except sub-section ( I H) th ereofJ of the Act. S ince by virtue of sub-sect ion ( IA) of section 206C o f 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 provi sions of section 194Q o f 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 conditi ons spec ified therei n are fulfi ll ed .
5.4 Applicability of the provisions of section 194Q in case of departm ent of Government not being a public sector undertaking or corporation
5.4.1 There have been representati ons from departm ent of the Gove rnme nt (both Central Government and State Government), to enquire if such de partment is requ ired to deduct tax under the provi sions 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 a l year immediately preceding the finan cial year in w hich the goods are purchased by such person. Thu s, for a person to be conside red as a buyer for the purposes of sect ion 194Q of the Act, fo llowi ng conditions a re required to be fulfilled:
(a) Such person sha ll be carryi ng out a business/ commercial act ivity; (b) The tota l sa les, gross receipts or turnover from such business/ commerc ial activity shall be more than Rs. 10 cro re duri ng the financi a l year immediate ly preced ing the finan c ia l year in w hich 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 com merc ia l activity, the primary requirement for be ing considered as a 'buyer' w ill not be fulfi ll ed . Accord ingly, such an organi zation wi ll not be considered as 'buyer' fo r the purposes of sect ion 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 activ ity, the prov ision of secti on 194Q of the Act sha ll apply subj ect to the fulfillment of othe r cond iti ons.
5.4.3 Issue has been ra ised in case where any department of the Government will be considered as a 'se ll er ' for the purposes of deduction of tax under secti on 194Q of the Act. In thi s regard , it is hereby clarified that for the pu rposes of secti on 194Q, Central Gove rnm ent or State Governm ent shall not be considered as 'se ll er' and no tax is to be ded ucted by the buyer, in cases whe re any Departm ent of Central or State Government are se ll er of goods. 5.4.4 In co nnect ion with above, it is further c larifi ed that any other person , s uch as a Public secto r Undertakin g or co rporati on establ ished under Ce ntra l or Stale Act or any other such body, authority or entity, sha ll be required to co mply w ith the prov isions o f secti on 194Q a nd tax shall be deducted according ly.
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