Whether TDS U/S 194Q is required to be deducted for payment made for electricity?

 

1. Legal Position of Section 194Q of the Income Tax Act:
It is applicable from 1st July 2021.
Buyer is required to deduct TDS @ 0.1% on purchase of goods exceeding ₹50 lakh in a financial year.
Applicable only if buyer’s turnover in preceding FY exceeds ₹10 crore.

2. Since Sec 194Q is applicable to purchase of goods, does electricity qualify as goods?
Electricity is generally treated as “goods” under:
Sale of Goods Act, 1930
Customs Tariff (Heading 2716 00 00)
GST Law (Section 2(52) of CGST Act, though exempted under specific circumstances)
So technically electricity may be treated as goods.

3. Whether Sec 194Q applies to electricity?
As per the CBDT Circular 13/2021, TDS under section 194Q shall not be applicable in case of purchase of electricity from power exchanges.
This means TDS under section 194Q is not applicable when electricity is purchased through power exchanges (like IEX, PXIL, etc.) as there’s no identifiable seller and the transactions are automated.

However, Sec 194Q may be applicable where, electricity is purchased directly from a power generation company or State Electricity Boards (SEBs) under a bilateral agreement or PPA.
Of course, the turnover of buyer should exceed ₹10 crore in preceding FY, and aggregate purchases from the Electricity Boards exceed ₹50 lakh in the year.

Note: As per Sec 196 of the Income Tax Act, TDS is not required to be deducted for payments to be made to the Central or State Government or Government Corporations exempt from Income Tax. However power generation or distribution companies do not fall under this category.

TaxByte by CA Aniket Kulkarni