A Short overview of the Recent CBDT Guidelines on TDS & TCS provisions


A Short overview of the Recent CBDT Guidelines on TDS & TCS provisions-  CA Naresh Jakhotia

The scope of Tax Deduction at Source (TDS) has been terribly widened by introduction of section 194Q in the Income Tax Act-1961. The newly introduced section 194Q provides that every buyer with turnover exceeding Rs. 10 Cr in the preceding year shall be liable to TDS @ 0.10% on the purchases amount exceeding Rs. 50 Lakh from the Seller.
Before section 194Q, 206C(1H) was already enacted which provided that every seller with turnover exceeding Rs. 10 Cr in the preceding year shall be liable to collect TCS from the buyer @ 0.10% on the sale consideration exceeding Rs. 50 Lakh.
New Law & Provision comes with a new set of issues and controversy. There were few controversial issues which made compliance with this newly introduced provision difficult. Finally, CBDT has issued one more guideline in the form of Circular No. 20 of 2021, dated 25/11/2021 which will put to rest some of the controversy. Let us know about it:
Advance payment & Adjustment of GST on advance payment while doing TDS
  1. a)It has already been clarified that TDS U/s 194Q is not required on the GST component if the same is indicated separately in the invoice. However, if the buyer makes the payment to the seller in advance against sale of goods then the TDS liability arises at the time of such advance payment.
  2. b)There were doubts with regard to applicability of TDS on such advance as there is no separate & independent element of GST on such advance payment.
  3. c)It has now been clarified that TDS in such cases has to be done on the amount credited to the account of the buyer without including such GST. In short, in case TDS is to be done on advance payment (i.e., receipt of money before billing) then the TDS shall be required to be done on the whole amount as it is not possible to identify that payment with GST component of the amount to be invoiced in future.
  4. d)Further, adjustment of TDS in case of purchase return has also been provided.
No TDS on other taxes also:
  1. a)CBDT vide circular no. 13 of 2021 has already clarified that TDS U/s 194Q will not be applicable in respect of GST components of the invoice.
  2. b)However, there were doubts about the applicability of the GST in case of goods which are not within the purview of GST such as petroleum products. Various levies like VAT, Excise duty, sales tax etc. are charged in such cases.
  3. c)It has been clarified that in case of purchase of goods which are not covered by GST, components of VAT/Sales tax/Excise duty/CST as indicated separately in the invoice will not be liable for TDS u/s 194Q.
  4. d)It has been further clarified that if TDS is done on payment basis then the TDS would be required to be done 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.
Applicability of TDS U/s 194Q if the goods purchased are used in the Manufacturing Process:
  1. a)It may be noted that section 206C(1A) provides that no TCS [Other than TCS U/s 206C(1H)] will be required if such buyer furnishes the declaration that goods purchased is going to be utilized for the purposes of manufacturing, processing or producing articles or things or for the purposes of generation of power and not for trading purposes. Goods like steel, scrap, Coal, etc are covered by other TCS provisions wherein TCS may not be required by virtue of section 206C(1A).
  2. b)There were divergent views on applicability of TDS U/s 194Q in case buyer furnishes the above declaration and so seller doesn’t do TCS at the time of billing.
  3. c)It has been clarified that in such a situation, the buyer would be liable to do TDS U/s 194Q if all other conditions specified therein are fulfilled.
TDS in ease of department of Government not being a public sector undertaking or corporation
  1. a)It has been clarified that in 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 liable to deduct tax on the goods so purchased by them. However, if the said department is carrying on business/commercial activity then the provision of section 194Q of the Act shall apply subject to the fulfillment of all other conditions.
  2. b)On an issue as to whether any department of the Government may be considered as a ‘seller’, it has been clarified that central Government or State Government shall not be considered as ‘seller’ for the purposes of section 194Q, and hence no TDS is required to be done by the buyer in cases where any Department of Central or State Government are seller of goods.
  3. c)In connection with above, it is further clarified that any other person, such as a Public sector Undertaking or corporation established under Central or State Act or any other such body, authority or entity, shall be required to comply with the provisions of section 194Q and TDS shall be deducted accordingly.
Exclusion to E-Auctioneer
  1. a)Section 194-0 in the income-tax Act 1961 provides for TDS @ 1% by e-commerce operator on the gross amount of sale of goods or provision of services or both, facilitated through its digital or electronic facility or platform.
  2. b)Now, above referred CBDT Circular has further clarified that the provisions of section 194-0 of the Act shall not apply in relation to e-auction activities carried out by e-auctioneers if certain conditions specified in the said circular have been complied with.
Trade & Industries were expecting that the new TDS & TCS provisions in the form of section 194Q & section 206C(1H) may be scrapped in the coming Budget – 2022 as it has added a lot of compliance burden on all the taxpayers. However, the present clarification by the CBDT has signaled that both these provisions are here to stay and taxpayers would be required to comply with it.