CBDT issues clarification on Sec 194Q

CBDT issues clarification on Sec 194Q of Income Tax Act 1961 vide Circular No 13 of 2021 dated June 30,2021. The Finance Act, 2021 inserted a new section 194Q in the Income-tax Act 1961 which takes effect from I July, 202I. It applies to any buyer who is responsible for paying any sum to any resident seller for the purchase of any goods of the value or aggregate of value exceeding fifty lakh rupees in any previous year.

Major Relevant Points are:-

  • Any sum paid/ credited by buyer from 1stApril to 30th June 2021 shall not be counted for tax deduction u/s 194Q.
  • TDS under section 194Q should be deducted net of GST, if charged separately. However in case of advance payments, if the tax is deducted on a payment basis because the payment is earlier than the credit, the tax would be deducted on the whole amount as it is not possible to identify that payment with the GST component of the amount to be invoiced in the future.
  • The provisions of section 194Q of the Act shall not apply to a non-resident whose purchase of goods from seller resident in India is not effectively connected with the permanent establishment of such non-resident in India.
  • The provisions of section 194Q of the Act shall not apply in the year of incorporation i.e. first year of entity.
  • If a transaction is both within the purview of section 194-Q of the Act as well as sub-section (I H) of section 206C of the Act, the tax is required to be deducted under section 194-Q of the Act. The transaction shall come out of the purview of sub-section (1 H) of section 206C of the Act after tax has been deducted by the buyer on that transaction.
  • If, for any reason, tax has been collected by the seller under sub-section (I H) of section 206C of the Act, before the buyer could deduct tax under section 194-Q of the Act on the same transaction, such transaction would not be subjected to tax deduction again by the buyer.(This is a welcome clarification though contrary to Act itself, but binding on department since issued through circular)