Analysis of Circular 13 of 2021 (Guidelines u/s 194Q)

Author in this article has provided simplified analysis of Circular 13 of 2021 which has provided guidelines u/s 194Q:-

1.      No TDS u/s 194Q on following:-

a.      Transactions in securities and commodities through recognized stock exchange or cleared through recognized clearing corporation;

b.     Transactions through power exchanges registered in accordance with Regulation 21 of the CERC

2.      No TDS u/s 194Q if either credit or payment has happened before 1st July, 2021;

3.      Fifty lakhs exemption to be computed for whole FY 2021-22 and not after 1st July, 2021;

4.      TDS u/s 194Q on Invoice amount less GST if GST is separately indicated;

5.      In case of advance payment then TDS u/s 194Q on whole advance amount;

6.      In case of Purchase Return TDS u/s 194Q can be adjusted;

7.      No TDS u/s 194Q by Non-Resident Buyer unless Purchase is effectively connected with Permanent Establishment in India.

8.      No TDS u/s 194Q 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.). This shall not apply to seller if only part of the income is exempt;

9.      No TCS u/s 206C(1H) on 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.). This shall not apply to seller if only part of the income is exempt;

10.  No TDS u/s 194Q by buyer in the year of incorporation as turnover criteria of last year will not be met in this case;

11.  Turnover or receipts from non-business activity is not to be counted for this purpose. Only sales or gross receipts or turnover from business carried on by buyer is to be considered for checking Rs. 10 crores limit;

12.  Interplay between Section 194Q, 194O and 206C(1H):-

a.      If both Section 194Q and 194O applicable then apply Section 194O;

b.     If both Section 206C(1H) and 194O applicable then apply Section 194O. Even if TCS u/s 206C(1H) is collected by seller then still buyer need to deduct TDS u/s 194O.

c.      If both Section 194Q and 206C(1H) applicable then apply Section 194Q. Here for ease of business it is clarified by CBDT that if Seller collect TCS u/s 206C(1H) then no need to deduct TDS u/s 194Q.

Issues generated from the Circular:-

1.      It is clarified that TDS is to be deducted on Invoice excluding GST amount if GST is separately mentioned however no clarification given for VAT. Ideally TDS should not be deducted on VAT potion as well however further clarification should be provided by CBDT;

2.      It is clarified that TDS is to be deducted on Invoice excluding GST amount if GST is separately mentioned however no clarification is given to check exemption value whether Rs. 50 lakhs is including or excluding GST;

3.      Now since TDS is not to be deducted on GST portion then below scenario can arise:-

a.      Total Value of transaction during the year:- Rs. 70.8 lakhs (including GST of Rs. 10.8 lakhs)

b.     TDS Applicable on:- Rs. 10 lakhs (Only basic amount to be considered

In above case, for TCS u/s 206C(1H) amount including GST is to be considered hence it can be viewed that still on Rs. 10.8 lakhs (70.8 (-)50 (-)10) TCS u/s 206C(1H) is to be collected. However here in the opinion of Author TCS shall not be applicable since the term used is “Transaction” hence since TDS u/s 194Q is applicable and deducted on said transaction although amount excluding GST thus TCS u/s 206C(1H) shall not be applicable on the same.

Concluding Remarks by the Author:-

Better late then never. These are much needed clarification from CBDT which will definitely help in implementation of Section 194Q. However following are still must:-

1. Seller should obtain a declaration from the Buyer for each year that Buyer will deduct TDS u/s 194Q as per the provisions of Section 194Q and that the Buyer has met the definition provided of term “Buyer” in Section 194Q. 
2. Irrespective of declaration, Seller should also keep a track of actual deduction of tax.