The Central Board of Direct Taxes (CBDT) has issued a new set of guidelines on 25 November 2021 with respect to the provisions relating to newly inserted Sections on Tax Deduction at Source (TDS) and Tax Collected at Source (TCS).

It may be noted that Section 194-O which is effective from 1 October 2020 mandates the e-commerce operators to deduct specified amount of tax from the sums payable to e-commerce participant for sale of goods or provision of services facilitated through its digital or electronic platform. Similarly, ac per Section 206C(1H), seller is to collect specified amount of tax from the buyer of goods in relation to the consideration for sale of goods exceeding INR 50 lakh. Further, as per Section 194Q which is effective from 1 July 2021, buyer must deduct specified amount of tax from the consideration payable to the seller for purchase of goods exceeding INR 50 lakh.

Section 194-O will not apply to e-auction activities carried out by e-auctioneers

• Difficulties in applying TDS in case of e-auctions as the transaction of sale and purchase is carried on directly between buyers and sellers
• E-auctioneer responsible only for providing electronic portal for price discovery of transaction.
• Now clarified that section 194-O shall not be applicable to e-auction activities carried out by e-auctioneers if all the conditions mentioned here under are satisfied:
  • E-auction services provided by the e-auctioneer through its electronic portal is only responsible for price discovery of the
  • The price discovered through e-auction will be negotiable between the parties participating in it separately.
  • The transaction of purchase/sale takes place between the parties outside the electronic portal of the e-auctioneer.
  • Except for price discovery, the e-auctioneer will not be responsible for facilitating the sale of goods for which the e-auction was
  • Payments for the transaction is carried out between the buyer and seller outside the electronic portal.
  • The e-auctioneer does not have any information on the quantum and schedule of payment.
  • The client will deduct TDS at applicable rates on the payment made to the e-auctioneer in lieu of receiving e-auction services.
• Since, TDS will not be required to be deducted under section 194-O, the buyer and seller may be required to deduct/collect TDS/TCS under section 194Q and section 206C(1H) of the IT Act, as the case may be.

Adjustment of various State levies and taxes other than GST and purchase returns

• Clarification has now been provided on deduction of TDS on the VAT, Excise duty, sales tax component on purchase of goods which are exempt from
• Where the tax has to be deducted under section 194Q on the basis of credit to the books of account (based on invoice), tax can be deducted on value excluding VAT / Sales tax / Excise Duty / CST
• Where tax has to be deducted on payment basis (advance paid before credit in books based on invoice), tax to be deducted on the entire payment including VAT / Sales tax / Excise Duty / CST
• If the seller refunds the consideration on account of purchase return, the tax deducted and deposited by the buyer can be adjusted against subsequent purchase of goods.
• No adjustment required where goods are returned by the buyer and replaced by the seller.

Section 194Q will be applicable on goods which are exempted under Section 206C(1A)

• Sub-section (1A) of section 206C of the IT Act exempts tax collection for certain goods such as scrap, coal, iron ore if buyer furnishes declaration that goods are to be utilized for manufacturing or production of articles or thing.
• Section 206C(1H) provides for collection of tax on sale of all goods other than those (like scrap, coal, iron ore etc.) to which other specific TCS provisions
• Section 194Q of the IT Act does not apply to those transactions where tax is collectible under any of the sub-sections of section 206C [other than subsection (1H)].
• Now clarified that TDS under section 194Q will apply on purchase of goods which may be otherwise exempted under section 206C(1A).
• For example, a buyer purchases scrap for manufacturing of certain
  • Buyer submits a declaration to the seller under section 206C(1A).
  • Seller not required to collect TCS u/s
  • Buyer of scrap required to deduct TDS u/s 194Q

Section 194Q will apply to public sector undertakings or corporations and certain government departments

• Tax to be deducted under section 194Q of the IT Act by a government department if:
  • Such government department is carrying out a business/commercial activity; and
  • the total sales, gross receipts or turn over from such business exceeds 10 crores during the preceding financial year
• Now clarified that a state government or the central government will not be considered as a seller for the purposes of deduction of TDS under section 194Q of the IT Act.
• Now clarified that all public-sector undertakings or corporation will be required to deduct TDS under section 194Q.