Section 194Q is now applicable from 01.07.2021 to apply TDS on purchase of goods and is a TDS version of section 206C(1H).
People were having many confusion in it’s applicability relating to GST component, 194Q vs 206C(1H) etc.
Later, on 30.06.2021 a clarification/ guidelines were issued by CBDT relating to various queries on section 194Q.
However, we feel that this clarification has confused the people even more and we shall discuss about 5 major clarification in this post.
1. Whether TDS u/s 194Q is applicable on electricity?
Ans: Second clause of Para 4.1.2 of the guidelines state that section 194Q would not be applicable on “transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with Regulation 21 of the CERC;”
Now reading the above para, people are considering that TDS need not be deducted on purchase of electricity as it has been specifically mentioned there.
However, we are of the opinion that we need to read this sentence as a whole and not just concentrate on electricity because this clarification talks about transaction of various items through exchange and hence here transaction in electricity is only restricted to transaction in electricity on exchange regulated by CERC and hence TDS will be applicable on purchase of electricity otherwise then through the exchange under section 194Q.
2. Whether TDS u/s 194Q has to be deducted on amount including GST or excluding GST i.e. on taxable value or invoice value?
Ans: Before the above clarification was issued we were of the opinion that TDS needs to be deducted on value of goods including GST as the circular issued by CBDT in this regard i.e. 23 of 2017 deals with GST on service and not GST on goods.
Now, CBDT has issued clarification and made it more confusing by providing two alternatives for different situation:
Situation 1: When amount is credited in books of accounts before receiving the payment: In such case TDS shall be deducted on amount excluding GST.
Situation 2: If the tax is deducted on payment basis because the payment is earlier than the credit, the tax would be deducted on the whole amount as it is not possible to identity that payment with GST component of the amount to be invoiced in future.
It would have been great if they would have just said to deduct TDS on amount including GST and thus bringing the provision in line with the TCS provision.
Now Let’s discuss the most controversial topic in this guidelines:
3. Whether section 194Q will be applicable in a transaction where TCS u/s 206C(1H) has been already deducted?
Ans: The last para of the guidelines/ clarifications deals with this situation as under:
“(v) If a transaction is both within the purview of section 194-Q of the Act as well as sub-section (1H) of section 206C of the Act, the tax is required to be deducted under section 194-Q of the Act. The transaction shall come out of the purview of sub-section (1H) of section 206C of the Act after tax has been deducted by the buyer on that transaction. Once the buyer has deducted the tax on a transaction, the seller is not required to collect the tax under sub-section (1H) of section 206C of the Act on the same transaction. However, if, for any reason, tax has been collected by the seller under sub-section (1H) 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.”
Sub-section 5 of section 194Q states as under:
“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.”
Thus, one could say that section 194Q over rules section 206C(1H) and hence it’s the first liability of buyer to deduct TDS on such transaction and if not deducted 30% of expenses could be disallowed.
However, according to above clarification it can be seen that if TCS has been collected under 206C(1H), deduction of TDS u/s 194Q won’t be required.
Hence, there is no hierarchy among the sections after this clarification which is more confusing as now for each transaction one will have to confirm whether the other party is deducting/ collecting, TDS/ TCS or not and this will in end lead to both the parties deducting TDS as well as collecting TCS.
What are your views on the same? Do comment below.
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One point for discussion
Whether electricity is goods for the purpose of section 194q
Thought SC has considered it goods for the purpose of sales tax law but explanation to section 28(via) defined services which includes supply of electricity. Should we go for definition given under the Act or SC decision given for another Act.
Matter gets more confused after circular on section 194q which says that transaction in electricity is exempt if transacted through power exchange। Does it mean that power purchased from transmission companies are liable u/s 194q
Are you talking about 28(va) wherein service has been defined.
We believe that it talks about supply of electricity and is not covering the manufacturing and transmitting of electricity.
Further after the above clarification of CBDT we believe that it will be considered as goods and liable to TDS u/s 194Q.
This is the personal opinion and not a legal view.
Consult your tax professional before taking any decision.