2.3-17 Compensation received at the time of voluntary retirement or separation

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How to compute tax to be deducted under section 194Q

Income subject to tax deduction under section 194Q

62.1 If the following conditions are satisfied, then tax is deductible under section 194Q –1. Payer is “buyer” of goods. 2. Payment/credit is on or after July 1, 2021. 3. Payment/credit pertains to purchase of goods from seller. 4. Aggregate payment/credit during the financial year exceeds Rs. 50 lakh. If the above conditions are satisfied, the buyer is required to deduct tax at source under section 194Q. 62.1-1 When tax is not deductible - Tax is not deductible under section 194Q if the following cases –

Cases when TDS under Comments section 194Q not applicable

Case 1 - If tax is deductible If tax is deductible under any other section, then under any other section tax shall be deducted under that section and not under section 194Q. Even when tax is deductible under any other section (but not actually deducted by the payer), TDS provisions of that section will apply and not TDS under section 194Q.

Case 2 - If tax is collectible If a particular transaction is covered by TCS prounder the provisions of visions of section 206C [other than sub-section section 206C [but other (1H)], then tax will be collected by the seller (and than sub-section (1H)] tax is not deductible by the buyer under section 194Q). If a particular transaction is covered by section 194Q as well as section 206C(1H), then TDS under section 194Q will apply and not TCS under section 206C(1H).

62.1-2 Removing any difficulty - If any difficulty arises in giving effect to the provisions of this section, the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty. These guidelines shall be laid before each House of Parliament

and shall be binding on the income-tax authorities and on the e-commerce operator.

Rates for tax deduction at source during the financial year 2022-23

62.2 Tax is deductible under section 194Q with effect from July 1, 2021. Tax is deductible by buyer at the rate of 0.1 per cent of the amount paid or payable exceeding Rs. 50 lakh. ➢ If the recipient does not furnish his PAN to the deductor, tax will be deducted at the rate of 5 per cent by virtue of section 206AA. PAN of the deductee should be mentioned in any correspondence and document which is exchanged between the deductor and deductee. ➢ If recipient is a non-filer of income-tax return, tax is deductible (by virtue of section 206AB) at the rate of 5 per cent [for detailed discussion, see para 6.5-2]. 62.2-1 Clarifications by CBDT - Vide Circular No. 13/2021, dated June 30, 2021 and Circular No. 20/2021, dated November 25, 2021, the following clarifications are given by the Board pertaining to section 194Q –➢ Transactions in securities - Section 194Q shall not be applicable in relation to, –a. transactions in securities and commodities which are traded through recognized exchanges; b. transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges. ➢ Adjustment for GST and other State levies - When tax is deducted at the time of credit of amount in the account of seller and in terms of the agreement or contract between the buyer and the seller, the component of GST comprised in the amount payable to the seller is indicated separately, tax shall be deducted under section 194Q on the amount credited without including such GST. If, however, the tax is deducted on 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 GST component of the amount to be invoiced in future. The above clarification will also be applicable in the case of purchase/sale of goods which are not covered by GST but covered by other State levies (i.e., VAT, excise duty, etc.). ➢ Purchase returns - Tax is required to be deducted at the time of payment or credit, whichever is earlier. Thus, before purchase return happens, the tax must have already been deducted under section 194Q on that purchase. If that is the case and against this purchase return the money is refunded by the seller, then this tax deducted may be adjusted against the next purchase against the same seller. No adjustment is required if the

purchase return is replaced by the goods by the seller as in that case the purchase on which tax was deducted under section 194Q has been completed with goods replaced. ➢ Whether non-resident can be buyer under section 194Q - The provisions of section 194Q 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. ➢ Whether tax is to be deducted when the seller is a person whose income is exempt - The provisions of section 194Q shall not apply on purchase of goods from a person (being a seller) who as a person is exempt from income tax under the Act (like person exempt under section 10) or under any other Act passed by the Parliament. However, this clarification would not apply if only part of the income of the seller is exempt. ➢ Whether tax is to be deducted on advance payment - Since the provisions of section 194Q apply on payment or credit whichever is earlier, TDS shall apply to advance payment made by the buyer to the seller. ➢ Whether provisions of section 194Q shall apply to buyer in the year of incorporation - Under section 194Q a buyer is required to have total sales or gross receipts or turnover from the business carried on by him exceeding Rs. 10 crore during the financial year immediately preceding the financial year in which the purchase of goods is carried out. Since this condition would not be satisfied in the year of incorporation, the provisions of section 194Q shall not apply in the year of incorporation. ➢ Whether provisions of section 194Q shall apply to buyer if the turnover from business is Rs.10 crore or less - For the purposes of section 194Q, a buyer is required to have total sales or gross receipts or turnover from the business carried on by him exceeding Rs. 10 crore during the immediately preceding financial year. Consequently, the sales or gross receipts or turnover from business carried on by him must exceed Rs. 10 crore. His turnover or receipts from non-business activity is not to be counted for this purpose. ➢ Cross application of section 194-O, section 206C(1H) section 194Q Under section 194Q(5), the provision of this section shall not apply to a transaction on which –a. tax is deductible under any of the provisions of this Act; and b. tax is collectible under the provisions of section 206C [other than a transactions on which sub-section (1H)] applies. After conjoint reading of all these provisions the following clarifications are given by the Board –1. If tax has been deducted by the e-commerce operator on a transaction under section 194-O [including transactions on which tax is not deducted

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