Guidelines under section 194-0 (4) and section 206C (1-I) of the Income-tax Act, 1961

The Central Board of Direct Taxes (CBDT) on September 29 gave a detailed clarification circular no 17 relating to the new TDS/TCS arrangements set to be pertinent from October 1, 2020, forward.

The CBDT has given an itemized list with respect to the pertinence of the new TDS/TCS arrangements. With respect to computation of limit for the financial year 2020-21, the tax body clarified

TCS to be gathered and paid on all installment got on or after first October ,2020 including measure of GST and furthermore deals made preceding first October,2020. The threshold of Rs50 lakhs is year based and consequently installment got before first October,2020 are to be thought of. Anyway relevance will be on installment gotten on or after first October, 2020.

Finance Act, 2020 embedded new section 194-0 in the Income-tax Act 1961 (hereinafter alluded to as "the Act") which orders that with impact from 1St day of October, 2020, an e-commerce operator will deduct income tax at the rate of one percent (subject to the arrangements of proposed section 197B of the Act) of the gross amount of sale of goods or provision of services or both, encouraged through its digital or electronic facility or platform. Notwithstanding, exclusion from the said allowance has been given if there should arise an occurrence of specific individuals or Hindu undivided family satisfying determined conditions. This deduction is needed to be made at the hour of credit of measure of such services or sale or both to the record of an internet business member or at the hour of installment thereof to such internet business member, whichever is prior.

Finance Act, 2020 additionally embedded sub-section (1 H) in section 206C of the Act which orders that with impact from first day of October, 2020 a vender getting a sum as thought available to be sale of any goods of the worth or total of such worth surpassing fifty lakh rupees in any previous year to gather tax from the purchaser an entirety equivalent to 0.1 percent (subject to the arrangements of proposed sub-section (10A) of the section 206C of the Act) of the deal thought surpassing fifty lakh rupees as personal duty. The assortment is needed to be made at the hour of receipt of measure of deals thought.

Sub-section (4) of section 194-0 and sub-section (1-I) of section 206C of the Act enables the Board (with the endorsement of the Central Government) to give rules to eliminate challenges. Different portrayals have been gotten by the Board for giving rules for eliminating certain troubles. In exercise of intensity contained under sub-section (4) of section 194-0 of the Act and sub-section (1-1) of section 206C of the Act, the Board, with the endorsement of the Central Government, thusly gives the accompanying rules.

Guidelines ON TDS and TCS from 1 October 2020

1) Applicability on transactions carried through various Exchanges:

1.1 It has been represented that there are practical difficulties in implementing the provisions of Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) contained in section 194-0 and sub-section (1 H) of section 206C of the Act in case of certain exchanges and clearing corporations. It has been stated that sometime in these transactions there is no one to one contract between the buyers and the sellers.

1.2 In order to remove such difficulties, it is provided that the provisions of section 194-0, and sub-section (1H) of section 206C, 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; and

For this purpose,-

(i) “recognized clearing corporation” shall have the meaning assigned to it in clause (i) of the Explanation to clause (23EE) of section 10 of the Act;

(ii) “recognized stock exchange” shall have the meaning assigned to it in clause (ii) of the Explanation 1 to sub-section (5) of section 43 of the Act; and

(iii) “International Financial Services Centre” shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005.

2) Applicability on payment gateway

2.1In e-commerce transactions, the payments are for the most part encouraged by payment gateways. It is spoken to that in these exchanges, there might be appropriateness of section 194-0 twice for example once on e-main commerce operator who is encouraging sell of goods or provision of services or both and once on payment gateway who additionally happen to qualify as e-commerce operator for encouraging assistance. To show a purchaser purchases goods worth one lakh rupees on e-commerce website "XYZ". He makes payment of one lakh rupees through advanced foundation of "ABC". On these realities risk to deduct tax under section 194-0 may fall on both "XYZ" and "ABC".

2.2 In request to eliminate this trouble, it is given that the payment gateway won't be needed to deduct tax under section 194-0 of the Act on an exchange, if the duty has been deducted by the e-commerce operator under section 194-0 of the Act, on a similar exchange. Thus, in the above model, if "XYZ" has deducted tax under section 194-0 on one slat rupees, "ABC" won't be needed to deduct tax under section 194-0 of the Act on a similar exchange. To encourage legitimate execution, "ABC" may take an endeavor from "XYZ" with respect to deduction of tax.

3) Applicability of on insurance agent or insurance aggregator:

3.1 It has been spoken to that insurance agents or insurance aggregators by and large have no involvement in transactions between insurance company and the buyer for ensuing years. It has been represented that in subsequent years, the obligation to deduct tax may emerge on the protection specialists or protection aggregators regardless of whether the exchanges have been finished legitimately with the insurance agency. This may result into difficulty for the protection agents/aggregators.

3.2 In order to remove difficulty it is provided that in years subsequent to the first year, if the insurance agent or insurance aggregator has no involvement in transactions between insurance company and the buyer of insurance policy, he would not be liable to deduct tax under section 194-0 of the Act for those subsequent years. However, the insurance company shall be required to deduct tax on commission payment, if any, made to the insurance agent or insurance aggregator for those subsequent years under the relevant provision of the Act.

4) Calculation of threshold for the financial year 2020-21.

4.2 it hereby clarified that,-

(i) Since the threshold of five lakh rupees for an individual/ Hindu undivided family (being e-commerce participant who has furnished his PAN/Aadhaar) is with respect to the previous year, calculation of amount of sale or services or both for triggering deduction under section 194-0 of the Act shall be counted from 1st April, 2020. Hence, if the gross amount of sale or services or both facilitated during the previous year 2020-21 (including the period up to 30th Sept 2020) in relation to such an individual/ Hindu undivided family exceeds five lakh rupees, the provision of section 194-0 shall apply on any sum credited or paid on or after 1st October, 2020.

(ii) Since sub-section (1H) of section 206C of the Act applies on receipt of sale consideration, the provision of this sub-section shall not apply on any sale consideration received before 1St October 2020. Consequently it would apply on all sale consideration (including advance received for sale) received on or after 1St October 2020 even if the sale was carried out before 1″ October 2020.

(iii) Since the threshold of fifty lakh rupees is with respect to the previous year, calculation of receipt of sale consideration for triggering TCS under sub-section (1H) of section 206C shall be computed from 1″ April, 2020. Hence, if a person being seller has already received fifty lakh rupees or more up to 30th September 2020 from a buyer, the TCS under sub-section (1H) of section 206C shall apply on all receipt of sale consideration during the previous year, on or after 1′ October 2020, from such buyer.

5) Applicability to sale of motor vehicle:

5.1 The provisions of sub-section (1F) of section 206C of the Act apply to offer of engine vehicle of the worth surpassing ten lakh rupees. Sub-section (1H) of section 206C of the Act avoid from its materialness products secured under sub-section (1F). It has been mentioned to explain that whether all engine vehicles are avoided from the pertinence of sub-section (1H) of section 206C of the Act.

5.2 It this regard it may be noted that the scope of sub-sections (1H) and (1F) are different. While sub-section (1F) is based on single sale of motor vehicle, sub-section (1H) is for receipt above 50 lakh rupee during the previous year against aggregate sale of good. While sub-section (IF) is for sale to consumer only and not to dealers, sub-section (1H) is for all sale above the threshold. Hence, in order to remove difficulty it is clarified that,

-(i) Receipt of sale consideration from a dealer would be subjected to TCS under sub-section (1H) of the Act, if such sales are not subjected to TCS under sub-section (1F) of section 206C of the Act.

(ii) In case of sale to consumer, receipt of sale consideration for sale of motor vehicle of the value of ten lakh rupees or less to a buyer would be subjected to TCS under sub-section (1H) of section 206C of the Act, if the receipt of sale consideration for such vehicles during the previous year exceeds fifty lakh rupees during the previous year.

(iii) In case of sale to consumer, receipt of sale consideration for sale of motor vehicle of the value exceeding ten lakh rupees would not be subjected to TCS under sub-section (1H) of section 206C of the Act if such sales are subjected to TCS under sub-section (1F) of section 206C of the Act

6) Adjustment for sale return, discount or indirect taxes

It is mentioned to explain that whether change is needed to be made for deals return, rebate or aberrant taxes including GST with the end goal of assortment of duty under sub-section (1H) of section 206C of the Act. It is thus explained that no change by virtue of offer return or rebate or aberrant taxes including GST is needed to be made for assortment of assessment under sub-section (1H) of section 206C of the Act since the assortment is made regarding receipt of measure of offer thought.

7) Fuel supplied to non-resident airlines

It is mentioned to explain if the arrangements of sub-section (1H) of section 206C of the Act will apply on fuel provided to non-inhabitant carriers at air terminals in India. To eliminate troubles it is given that the arrangements of sub-section (1H) of section 206C of the Act will not make a difference on the deal thought got for fuel provided to non-inhabitant aircrafts at air terminals in India