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Tax Alert: Clarifications on Section 194Q-TDS on Purchase of Goods

The Central Board of Direct Taxes (CBDT) introduced a new Section 194Q in Finance Act, 2021, which is effective from 01st July 2021, for withholding tax at source on payments made for the purchase of goods.

The provision of Section 194Q states that:

  • Any person, being a Buyer, having a turnover or gross receipts exceeding INR 10 crores during the preceding financial year;
  • While making payment of any sum to any resident (Seller) for purchase of any goods of the value, where the aggregate of such value exceeds INR 50 lakhs in the previous year
  • Shall at the time of credit of such sum to the account of the Seller or at the time of payment, whichever is earlier, deduct an amount equal to 0.1% percent as income tax.

The above provision is not applicable, where:

  • Tax is deductible under any other provision of the Act; or
  • Tax is collectible under the provision of section 206C of the Act, other than transactions covered u/s. 206C(1H) therein.

The CBDT has received several representations with respect to practical challenges that may arise in the implementation of section 194Q. To address the difficulties that may arise, the CBDT has issued Circular No 13[1] of 2021 providing various clarifications regarding section 194Q.

194Q is not applicable in the following situations:

As per the Circular, ambiguity is removed on the applicability of section 194Q in a number of cases. CBDT has clarified that section 194Q is not applicable in the following situations:

  • Transactions relating to securities and commodities, which are carried through recognized stock exchanges, including exchanges that are located in the International Financial Service Centre.
  • Transactions in electricity, renewable energy certificates, or energy certificates traded through registered power exchanges.
  • Payments by non-resident Buyers unless if the purchase of goods is not effectively connected with the Permanent Establishment / fixed place of business of such non-resident in India.
  • On purchase of goods from a Seller whose income is exempt from tax. Similarly, it is clarified that tax collection at source (TCS) provisions under section 206C (1H) of the Act would not be applicable if the Buyer’s income is exempt from tax. However, these exemptions would not be applicable if only part of the Seller’s/Buyer’s income is exempt.
  • In the year of incorporation of the Buyer, the threshold of INR 10 crore would not be satisfied.
  • Transactions, where either payment or credit for the transaction happened before 1st July 2021.
  • TDS would not be applicable on the GST amount if the GST amount is separately indicated in the invoice. However, in the case of advance payments, the TDS under section 194Q will have to be discharged on the entire amount, as it is not possible to identify the GST component.

Calculation related clarifications

  • It has been clarified that for calculating the threshold of INR 50 lakhs in respect of a particular Seller, the transaction for the whole FY 2021-22 shall be considered, starting from 1st April 2021 and not from 1st July 2021.
  • For computing threshold of INR 10 crore in respect of the Buyer, only business turnover or gross receipts from business activities is to be considered. As such, turnover or gross receipts from non-business activities would not require to be taken into consideration.
  • In case of purchase returns, the TDS deducted on such purchases under section 194Q shall need to be adjusted against subsequent purchases from the same Seller, if the money is refunded by the Seller to the Buyer. However, no adjustment will be required in cases where the purchase return is replaced by goods by the Seller.

The interplay between sections 194O, 194Q, and 206C(1H) of the Act:

  • If Section 194O is applicable on any particular transaction, then Section 194Q shall not be applicable;
  • If both section 194O and section 194Q are applicable, then section 194O will prevail;
  • Section 206C(1H) is not applicable if TDS is deductible u/s. 194O or Sec 194Q;
  • If both sections 194O and 206C(1H) are applicable, then 194O shall prevail. Even if TCS is collected by the Seller still tax deduction responsibility of the E-commerce operator under section 194O cannot be condoned; this is because the prescribed tax rate under section 194O is higher than the prescribed tax rate u/s. 206C(1H);
  • If both sections 194Q and 206C(1H) are applicable, then section 194Q shall prevail. However, for ease of business, if TCS under section 206C(1H) has already been collected by the Seller then section 194Q would not be applicable; this is because the prescribed tax rate for deduction under section 194O and the prescribed tax rate for collection under section 206C(1H) are the same.

Comments:

This Circular is an extremely welcome one and has several important clarifications that have been issued by the CBDT before the enactment of the provisions of sections 194Q and 206C(1H). The Circular provides clarity vis-à-vis the scope of the relevant provisions, calculation of thresholds, interplay between overlapping provisions etc.

However, there are still some niggling doubts that prevail, requiring further clarity. For instance, while calculating the threshold of turnover or gross receipts of INR 10 crore w.r.t the Buyer, whether the amount considered should include or exclude the GST component.  

Also, it would help if it is prescribed for the Seller to obtain a “no deduction” declaration from the Buyer w.r.t TDS under section 194Q, in a situation where both sections 194Q and section 206C(1H) are jointly applicable on the same transaction and tax has already been collected and paid under section 206C(1H) by the Seller.

References

[1] Circular No 13 of 2021 dated 30th June 2021 (F No. 370142/26/2021 – TPL

 

Image Credits: Photo by Kelly Sikkema on Unsplash

This Circular is an extremely welcome one and has several important clarifications that have been issued by the CBDT before the enactment of the provisions of sections 194Q and 206C(1H). The Circular provides clarity vis-à-vis the scope of the relevant provisions, calculation of thresholds, interplay between overlapping provisions etc.

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Income Tax Returns for AY 2020-21: Ready Referencer

With the extended time limit for filing of Income Tax Return (for AY 2020-21), u/s. 139(1), without late fees, for Non-Audit cases and for Non-Corporate assessees of 31st December 2020 fast approaching, given below is a quick guide for ready reference of some key changes that have been made in the respective Income tax return forms for this year.

Further, the conditions and features for eligibility of forms that are applicable for filing the correct income tax returns are also specified as follows:

Key Procedural Changes:

  • ITR 1 to ITR 4 can be filed using PAN or Aadhar by Individuals.
  • The submitted ITR forms display the ITR-V with a watermark ‘Not Verified’ until the same is verified either electronically by EVC or by sending the same via post after manual signing.
  • The unverified form ITR-V will not contain any income, deduction and tax details. The unverified form will only contain basic information, E-filing Acknowledgement Number and Verification part.
  • The unverified acknowledgement is titled as ‘INDIAN INCOME TAX RETURN VERIFICATION FORM’ & final ITR-V is titled as ‘INDIAN INCOME TAX RETURN ACKNOWLEDGEMENT’.
  • Return filed in response to notice u/s. 139(9), 142(1), 148, 153A, and 153C must have DIN.
  • There is a separate disclosure for Bank accounts in case of Non-Residents who are claiming income tax refund and not having a bank account in India.

COVID related Changes:

  • The Government had extended the time limit for claiming tax deduction u/CH VIA to 31st July 2020, and the details of the same need to be reported in Schedule DI (details of Investment).
  • The time limit for investing the proceeds or capital gains in other eligible assets, so as to claim exemptions u/s 54/ 54B/ 54F/ 54EC, had been extended to 30th September 2020.
  • Penal interest u/s. 234A @ 1% p.m., where the payments were due between 20-03-20 to 29-06-20 and such amounts were paid on or before 30-06-20, had been reduced to 75%, vide ordinance dated 31-03-20.
  • Period of forceful stay in India, beginning from quarantine date or 22-03-20 in any other case up to 31-03-20, is to be excluded, for the purpose of determining residential status in India.[1]

Consequences of Late filing of Return of Income:

  • Late Fees u/s. 234F of INR. 5,000 up to 31.12.20 and INR. 10,000 up to 31.03.21. In case of total income up to 5 Lacs, the penalty is INR. 1,000.
  • Penal Interest u/s. 234A @ 1% per month
  • Reduced to 75%. vide Ordinance dated 31.03.20, where the payments were due between 20.03.20 to 29.06.20, and such amounts were paid on or before 30.06.20.
  • Vide CBDT Notification dt 24.06.2020, no interest u/s 234A if Self-Assessment tax liability is less than 1 Lac and the same has been paid before the original due date.
  • In case of a belated return, loss under any head of Income (except unabsorbed depreciation) cannot be carried forwarded.
  • Deduction claims u/s. 10A, 10B, 80-IA, 80-IB, etc would not be allowed.

Consequences of Late filing of Return of Income:

  • Late Fees u/s. 234F of INR. 5,000 up to 31.12.20 and INR. 10,000 up to 31.03.21. In case of total income up to 5 Lacs, the penalty is INR. 1,000.
  • Penal Interest u/s. 234A @ 1% per month
  • Reduced to 75%. vide Ordinance dated 31.03.20, where the payments were due between 20.03.20 to 29.06.20, and such amounts were paid on or before 30.06.20.
  • Vide CBDT Notification dt 24.06.2020, no interest u/s 234A if Self-Assessment tax liability is less than 1 Lac and the same has been paid before the original due date.
  • In case of a belated return, loss under any head of Income (except unabsorbed depreciation) cannot be carried forwarded.
  • Deduction claims u/s. 10A, 10B, 80-IA, 80-IB, etc would not be allowed.

Vide CBDT Notification dt 24.06.2020, no interest u/s 234A if Self-Assessment tax liability is less than 1 Lac and the same has been paid before the original due date.

  1. Section 5A: Apportionment of income between spouses governed by the Portuguese Civil Code.
  2.  115BBDA: Tax on dividend from companies exceeding Rs. 10 Lakhs; 115BBE: Tax on unexplained credits, investment, money, etc. u/s. 68 or 69 or 69A or 69B or 69C or 69D.
  3. Inserted in sec 139(1) by Act No. 23 of 2019, w.e.f. 1-4-2020:

Provided also that a person referred to in clause (b), who is not required to furnish a return under this sub-section, and who during the previous year:

  • has deposited an amount or aggregate of the amounts exceeding one crore rupees in one or more current accounts maintained with a banking company or a co-operative bank; or
  • has incurred expenditure of an amount or aggregate of the amounts exceeding two lakh rupees for himself or any other person for travel to a foreign country; or
  • has incurred expenditure of an amount or aggregate of the amounts exceeding one lakh rupees towards consumption of electricity; or
  • fulfils such other conditions as may be prescribed,

Shall furnish a return of his income on or before the due date in such form and verified in such manner and setting forth such other particulars, as may be prescribed.

4. Section 57: Deduction against income chargeable under the head “Income from other sources”.

5. Schedule DI: Investment eligible for deduction against income (Ch VIA deductions) to be bifurcated between paid in F.Y.19-20 and during the period 01-04-20 to 31-07-20.

6.High-value Transaction: Annual Cash deposit exceeding Rs. 1 crore or Foreign travel expenditure exceeding Rs. 2 Lakhs, Annual electricity expenditure exceeding Rs. 1 Lakh.
7.Schedule 112A: From the sale of equity share in a company or unit of equity- oriented fund or unit of a business trust on which STT is paid under Section 112A.

8. 115AD(1)(iii) proviso: for Non-Residents – from the sale of equity share in a company or unit of equity-oriented fund or unit of a business trust on which STT is paid under Section 112A.
9. Section 40(ba): any payment of interest, salary, bonus, commission or remuneration paid to a member in case of Association of Person (AOP) or Body of Individual (BOI).

10. Section 90 & 90A: Foreign tax credit in cases where there is a bilateral agreement; Section 91: Foreign tax credit in cases of no agreement between the countries.

[1] Circular No 11 of 2020 dated 08th May 2020.

References

Image Credits: Photo by Markus Winkler from Pexels

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