CBDT issues further guidelines on withholding of taxes for sale and purchase of goods and e-commerce platforms

Circular No. 20/2021 dated 25 November 2021 (Circular) issued by the Central Board of Direct Taxes (CBDT), provides guidelines for removing certain difficulties in the application of provisions regarding withholding tax @ 0.1% on purchase of goods [Section (S.) 194Q of the Income Tax Laws (ITL)] (tax deducted at source (TDS) on purchases), collection of tax at source at 0.1% on the sale of goods (S. 206C(1H) of the ITL) (tax collected at source (TCS) on sales) and withholding tax @ 0.1% on transactions carried out by e-commerce operators (S. 194-O of the ITL) [TDS on e-commerce operators (EOP)].

The Finance Act, 2021 (FA 2021) widened the withholding provisions by extending it to buyers on purchase of goods from resident sellers of value exceeding INR5m during the tax year, subject to certain specified thresholds and exclusions (TDS on purchases). This was in addition to TCS on sales by seller from buyer on receipt of consideration towards sale of goods and TDS on EOP introduced by the Finance Act, 2020 (FA 2020), with effect from 1 October 2020.

In response to representations received from stakeholders requesting clarifications on various issues relating to the above provisions, the Circular provides the following clarifications for removal of difficulties:

• EOP shall not be liable to withhold taxes on e-auctions carried out for price discovery through its electronic platform, provided certain conditions are satisfied.
• In line with the clarification provided earlier in respect of goods and services tax (GST), with respect to indirect taxes other than GST (like value added tax (VAT)/sales tax/excise etc.), which are included in the sale price of goods, if TDS is made at the time of credit of amount in the account of the seller and in terms of the agreement or contract between the buyer and the seller, the component of indirect tax is indicated separately in the invoice, then TDS is to be made on the amount credited without including such indirect tax. If TDS is made at the time of payment, then TDS on purchases is applicable on the indirect tax component.
• With respect to certain goods (which are covered by a different TCS provision other than the general provision of TCS on sales) which are to be utilized by the buyer, being resident in India, for the purpose of manufacturing, processing or producing articles or things or for the purpose of generation of power (i.e., industrial purposes) and not for trading purpose on which TCS is not applicable in terms of declaration furnished by the buyer, the Circular clarifies that TDS on purchases will be applicable and, accordingly, the buyer will need to do TDS on purchases if other conditions are satisfied.
• With respect to TDS on purchases by government departments (not being a public sector undertaking or corporation), the Circular clarifies that government departments not carrying out any business or commercial activity will not be required to do TDS on purchase since the primary requirement for being considered a “buyer” will not be fulfilled. On the other hand, if a department is carrying on a business/commercial activity, TDS on purchase will apply, subject to satisfaction of other conditions.
• Furthermore, the Circular also clarifies that any other person, such as public sector undertakings or a corporation established under central or state act or any other such body, authority or entity, are not covered by the exemption above and are required to do TDS on purchases.