People had various queries related to section 194Q which will be applicable from 01.07.2021 and is applicable on purchase of goods.
Now, CBDT has issued various clarification on applicability of section 194Q as under:
1. Whether section 194Q is applicable on on transactions carried through various Exchanges i.e. stock exchanges?
Ans: In this regard it is provided that the provisions of section 194Q of the Act shall not be applicable in relation to,-
(i) transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation, including recognized stock exchanges or recognized clearing corporation located in International Financial Service Centre;
(ii) transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with Regulation 21 of the CERC;
2. How to calculate threshold of purchase for FY 2021-22?
Ans: Threshold shall be computed from 01.04.2021 even when section is applicable from 01.07.2021.
3. Whether TDS will be applicable on purchase credited or advance paid for any purchase made before 01.07.2021?
Ans: Since, TDS u/s 194Q is applicable on credit or payment whichever is earlier and hence if payment or credit is done before 01.07.2021 no TDS will be applicable on such transaction.
4. Whether TDS u/s 194Q is to be deducted on amount including GST or excluding GST?
Ans: CBDT had vide circular 17 of 2020 dated 29th Sept 2020 it was clarified that no adjustment on account of
GST is required to be made for collection of tax under sub-section (IH) of section 206C of the Act since the collection is made with reference to receipt of amount of sale consideration.
Further, it has been clarified in circular no 23 of 20 17 dated 19th July 2017 that no TDS is to be deducted on the component of GST on service.
Now it has been clarified that when tax is deducted at the time of credit of amount in the account of seller and in terms of the agreement or contract between the buyer and the seller, the component of GST comprised in the amount payable to the seller is indicated separately, tax shall be deducted under section 194Q of the Act on the amount credited without including such GST.
However, 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.
Earlier in our post about section 194Q we had discussed that TDS would be deducted on value including GST in absence on any clarification but now clarification has been issued.
5. How to make adjustment of Purchase return for TDS u/s 194Q?
Ans: With respect to purchase return it is clarified that the tax is required to be deducted at the time of payment or credit, whichever is earlier. Thus, before purchase return happens, the tax must have already been deducted under section 194Q of the Act on that purchase. If that is the case and against this purchase return the money is refunded by the seller, then this tax deducted may be adjusted against the next purchase against the same seller. No adjustment is required if the purchase return is replaced by the goods by the seller as in that case the purchase on which tax was deducted under section 194Q of the Act has been completed with goods replaced.
6. Whether buyer mentioned u/s 194Q would include Non-resident buyer purchasing from resident seller?
Ans: The provisions of section 194Q of the Act shall not apply to a non-resident whose purchase of goods from seller resident in India is not effectively connected with the permanent establishment of such nonresident in India.
7. Whether tax is to be deducted when the seller is a person whose income is exempt?
Ans: 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.).
The above clarifications would not apply if only part of the income of the person (being a seller or being a buyer, as the case may be) is exempt.
8. Whether tax is to be deducted under section 194Q on advance payment?
Ans: Since the provisions apply on payment or credit whichever is earlier, the provisions of section 194Q of the Act shall apply to advance payment made by the buyer to the seller.
9. Whether provisions of section 194Q of the Act shall apply to buyer if the turnover from business is 10 crore or less? Whether receipts from other than business has to be considered while calculating turnover of Rs. 10 crore?
Ans: It is clarified that for the purposes of section 194Q of the Act, a buyer is required to have total sales or gross receipts or turnover from the business carried on by him exceeding ten crore rupees during the financial year immediately preceding the financial year in which the purchase of good is carried out. Hence, the sales or gross receipts or turnover from business carried on by him must exceed Rs 10 crore. His turnover or receipts from non-business activity is not to be counted for this purpose.
Additional Clarification about section 194-O and section 206C(1H):
10. Whether seller under section 206C(1H) has to collect TCS on buyer whose income is exempt?
Ans: it is clarified that the provisions of section 206(1H) 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 clarifications would not apply if only part of the income of the person (being a seller or being a buyer, as the case may be) is exempt.
11. Hierarchy of applicability of various sections related to TDS/ TCS on goods i.e. section 194-O (E-commerce operator), 194Q, 206C(1H).
Ans: The hierarchy of section 194-O, section 194Q and section 206C(1H) is as under where a transaction is covered under all 3 sections:
(i) Section 194-O (first priority): If transaction is covered under all three section TDS will be deducted under 194-O.
(ii) Section 194-Q (second priority): If transaction is covered under 194Q and 206C(1H), TDS u/s 194Q shall be deducted.
(iii) Section 206C(1H) (third priority): If not covered under any of above sections then TCS shall be collected under 206C(1H).
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