NO TDS u/s 194-O is required on E-Auction Services
CBDT has issued Circular No. 20/2021- dated 25th November 2021 for clarifying certain issues relating to deduction of TDS/collection of TCS. In this article, we are making an attempt to simplify the aforesaid article for the readers. The first issue covered by the above circular is the applicability of section 194-O upon the E-auction services carried out through the electronic portal. So, let’s discuss this issue first.
Guidelines for TDS compliance in case of e-auction services carried out through the electronic portal
TDS u/s 194-O
As we are aware the Finance Act 2020 has inserted a new section 194-O under the Income Tax Act, 1961 which requires that an e-commerce operator shall deduct TDS @ 1% of the gross amount of sale of goods/ services or both facilitated through its digital or electronic platform. This provision took effect from 1st October 2020. A large number of traders (small or otherwise) are presently engaged in selling their products or services through e-commerce platforms like Amazon, Flipkart, Meesho, Udaan, etc. They are straightaway hit by this provision. Section 194-O has the effect that these platforms shall now deduct tax @ 1% on the gross sales made by these traders through these platforms. However, there is a relief given in this section itself for small traders. Section 194-O states that in the case of individual or HUF traders (making sales through e-com platform like Amazon), no tax shall be deducted if the gross amount of sales through any platform does not exceed Rs. 5 Lakhs and such trader furnishes its PAN & Aadhar to the e-commerce platform.
CBDT had already issued necessary guidelines for compliance of Section 194-O of the Act. However, it came out with yet another circular to clarify TDS requirement in case of E-auction services as E-auction services through the electronic portal are directly hit by the said section and various doubts were there over the manner of applicability of Section 194-O on such services.
E-auction services carried out through the electronic portal
- In an e-auction, the e-auctioneer involved in conducting the e-auction through its portal is not involved in facilitating any sale of goods or services. The e-auctioneer is responsible only for the price discovery for the sale/ purchase of goods or services and the result of the auction report is only submitted to the client. The most important feature of e-auction service is that the client of such e-auctioneers could be either seller or the buyer.
- Participants in the auction are sellers (if the client is the buyer) or buyers (if the client is the seller). The e-auction portal does not carry out any sale or purchase. The transaction of sale/ purchase is being carried out directly between the buyer and the seller which is not done through the electronic portal of the e-auctioneer.
- Further, the price discovered by the auction process can be further subjected to negotiation between the parties without the knowledge of the e-auctioneer. Thus, there is no role of the e-auctioneer in settling the selling price and the consequent sale transaction between the seller and the buyer. Therefore, it raised the confusion whether Section 194-O will apply in this case or not as the transaction of sale/ purchase itself does not take place through e-portal. CBDT had received representations on this issue which are covered in detail by the above circular.
From the representations made, the following facts have been noticed:
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The e-auctioneer conducts e-auction services for its clients in its electronic portal and is responsible for the price discovery only which is reported to the client. |
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The price so discovered through the e-auction process is not necessarily 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. |
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The transaction of purchase/ sale takes place directly between the buyer and the seller party outside the electronic portal maintained by the e-auctioneer and price discovery only acts as the starting point for negotiation and conclusion of purchase/ sale. |
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The e-auctioneer is not responsible for facilitating the purchase and sale of goods for which the e-auction was conducted on its electronic portal except to the extent of price discovery. |
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Payments for the transactions are carried out directly between the buyer and the seller outside the electronic portal and the e-auctioneer does not have any information about the quantum and the schedule of payment which is decided mutually by the client and the counterparty. |
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For payment made to e-auctioneer for providing e-auction services, the client deducts tax under the relevant provisions of the Act other than Section 194-O of the Act. |
CBDT clarified that the provisions of Section 194-O of the Act shall not apply in relation to e-auction activities carried out by e-auctioneers if all the facts listed above are satisfied. This clarification shall not apply if any of these facts are not satisfied. Further, it is clarified that the buyer and the seller would still be liable to deduct/ collect tax as per the provisions of section 194Q and 206C(1H) of the Act, as the case may be.
Clarification on adjustment of various state taxes other than GST u/s 194Q
- It was earlier clarified by CBDT vide Circular No. 13 of 2021 dated 30.06.2021 that in case the GST component has been indicated separately in the invoice and tax is deducted at the time of credit of the amount in the account of the seller, then the tax is to be deducted u/s 194Q of the Act on the amount credited without including GST. It was further provided that in case the tax is deducted on a 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 the GST component of the amount to be invoiced in the future. However, the aforesaid circular is silent on various state levies such as excise duty on liquor, state VAT, etc. which are not covered within the purview of GST.
- In this respect, the CBDT has clarified that in case of purchase of goods where 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 u/s 194Q on the amount credited without including such VAT/Sales tax/ excise duty/ CST, as the case may be. However, if the tax is to be deducted on a 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. Further, in case of purchase returns, the clarification as provided in Para 4.3.3 of Circular no. 13 of 2021 shall also apply to purchase returns relating to non-GST products liable to VAT/ Excise duty/ Sales Tax/ CST, etc.
Applicability of Section 194Q in cases where exemption has been provided u/s 206(1A) of the Income Tax Act
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Sub-section (1A) of Section 206C of the Act provides that notwithstanding anything contained in sub-section (1) of the said section, no tax is to be collected in case of a buyer, who is a resident of 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 (1) of the said section, are to be utilized for the purposes of manufacturing, processing or producing articles or things for the purposes of generation of power and not for trading purposes. |
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Under Section 206C(1H) of the Act, tax is to be collected in respect of the sale of goods other than the goods which have not been covered under sub-section (1) or sub-section (1F) or sub-section (1G). It has been represented that in the case of goods that are covered under the provisions of sub-section (1) of the said section but exempted under sub-section (1A), the tax will not be collectible under either subsection (1) or sub-section (1H) of section 206C as the provisions of sub-section (1H) categorically exclude the goods which are covered under sub-section (1) of section 206C. It has been requested to clarify the provisions of section 194Q of the Act will be applicable in such cases. |
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CBDT clarified that the provisions of section 194Q of the Act do not apply in respect of those transactions where tax is collectible u/s 206C (except sub-section (1H) thereof) of the Act. Since by virtue of sub-section (1A) of section 206C of the Act, the tax is not required to be collected for goods covered under sub-section (1) of the said section, it is hereby clarified that in such cases, the provisions of section 194Q of the Act will apply and the buyer shall be liable to deduct tax under the said section if the conditions specified therein are fulfilled. |
Applicability of Section 194Q in case of Government Department not being a public sector undertaking or corporation
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There have been representations from the department of the Government (both Central Government and State Government), to enquire if such department is required to deduct tax under the provisions of section 194Q of the Act. |
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As per the provisions of section 194Q, tax is to be deducted by a person, being a buyer, whose total sales, gross receipts, or turnover from business carried on by that person exceed ten crore rupees during the financial 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, the following conditions are required to be fulfilled:
(a) Such person shall be carrying out a business/ commercial activity; (b) The total sales, gross receipts, or turnover from such business/ commercial activity shall be more than Rs. 10 crores during the financial year immediately preceding the financial year in which goods are being purchased by such person. |
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In the case of any Department of the Government which is not carrying out any business or commercial activity, the primary requirement for being considered as a 'buyer' will not be fulfilled. Accordingly, such an organization will not be considered as a 'buyer' for the purposes of section 194Q of the Act and will not be liable to deduct tax on the goods so purchased by them. However, if the said department is carrying on a business/commercial activity, the provision of section 194Q of the Act shall apply subject to the fulfillment of other conditions. |
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The issue has been raised in cases where any department of the Government will be considered as a ‘seller’ for the purposes of deduction of tax u/s 194Q of the Act. In this regard, it is hereby clarified that for the purposes of Section 194A, Central Government or State Government shall not be considered as ‘seller’ and no tax is to be deducted by the buyer, in cases where any department of Central or State Government are a seller of goods. |
Disclaimer: The above article is based upon the above-quoted CBDT circular and is meant for informative purposes only.
