Central Board of Direct Taxes (CBDT) has issued Circular No.17/2020 dated 29th September, 2020 to prescribe the guidelines on the applicability of provisions inserted through Finance Act, 2020 under Income Tax Act, 1961 which is to come into effect from 1st day of October, 2020 relating to-
A. An e-commerce operator shall deduct income-tax at the rate of 1% of the gross amount of sale of goods or provision of service or both, facilitated through its digital or electronic facility or platform under Section 194-0 and;
B. A seller receiving an amount as consideration for sale of any goods of the value or aggregate of such value exceeding INR 50 lakhs in any previous year to collect tax from the buyer a sum equal to 0.1 % of the sale consideration exceeding INR 50 lakhs as income-tax under sub section 1H of Section 206C.
Guidelines issued in the Circular are:
1) The above mentioned newly inserted provisions of TDS and TCS shall not be applicable in relation to-
(i) transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation, including recognized stock exchanges or recognized clearing corporation located in International Financial Service Centre;
(ii) transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with Regulation 21 of the CERC, considering the fact that there is no one to one contract between the buyers and sellers.
2) The liability of deducting of tax by an e-commerce operator may also arise on the payment gateway when the payments are facilitated through it in case of any e-commerce transactions which would amount to applicability of this Section 194-0 twice. Hence, it has been provided that the payment gateway will not be required to deduct tax under Section 194-0 of the Act on a transaction, if the tax has been deducted by the ecommerce operator under Section 194-0 of the Act, on the same transaction and also the payment gateway to obtain an undertaking from ecommerce operator regarding deduction of tax.
3) It has also been clarified that in years subsequent to the first year, if the insurance agent or insurance aggregator has no involvement in transactions between insurance company and the buyer of insurance policy, he would not be liable to deduct tax under Section 194-0 of the Act for those subsequent years, However, the insurance company shall be required to deduct tax on commission payment, if any, made to the insurance agent or insurance aggregator for those subsequent years under the relevant provision of the Act.
4) Further, it has been clarified that the threshold of five lakh rupees for an individual/ Hindu undivided family (being ecommerce participant who has furnished his PAN/Aadhaar) is with respect to the previous year. Hence, calculation of amount of sale or services or both for triggering deduction under Section 194-0 of the Act shall be counted from 1st day of April, 2020. Hence, if the gross amount of sale or services or both facilitated during the previous year 2020-21 (including the period up to 30th Sept 2020) in relation to such an individual/Hindu undivided family exceeds five lakh rupees, the provision of Section 194-0 shall apply on any sum credited or paid on or after 1st day of October, 2020.
5) It has been clarified that provisions of Sub Section 1H of Section 206C would apply on all sale consideration (including advance received for sale) received on or after 1st day of October 2020 even if the sale was carried out before 1st day of October 2020.
6) It has also been clarified that the threshold of INR 50 lakhs is with respect to the previous year, calculation of receipt of sale consideration for triggering TCS under sub-section (1H) of Section 206C shall be computed from 1st April, 2020. Hence, if a person being seller has already received fifty lakh rupees or more up to 30th September 2020 from a buyer, the TCS under sub-section (1H) of Section 206C shall apply on all receipt of sale consideration during the previous year, on or after 1st October 2020, from such buyer.
7) It has been clarified that receipt of sale consideration from a dealer of motor vehicle would be subjected to TCS under sub-section (IH) of Section 206C the Act, if such sales are not subjected to TCS under sub-section (1F) of Section 206C of the Act. Also, it has been clarified that in case of sale to consumer, receipt of sale consideration for sale of motor vehicle of the value of ten lakh rupees or less to a buyer would be subjected to TCS under sub-section (1 H) of Section 206C of the Act, if the receipt of sale consideration for such vehicles during the previous year exceeds fifty lakh rupees during the previous year.
8) It has been clarified that no adjustment on account of sale return or discount or indirect taxes including GST is required to be made for collection of tax under sub-section (IH) of Section 206C of the Act since the collection is made with reference to receipt of amount of sale consideration.
9) It has been clarified that the provisions of sub-section (1 H) of Section 206C of the Act shall not apply on the sale consideration received for fuel supplied to non-resident airlines at airports in India.
For further details, please refer to the attached document.