The Income Tax Department on Tuesday issued guidelines for applicability of TCS provision which requires an e-commerce operator to deduct 1 per cent tax on the sale of goods and services with effect from October 1. The Finance Act, 2020 inserted a new section 194-O in the Income-tax Act 1961 which mandates that with effect from October 1, 2020, an e-commerce operator shall deduct income tax at the rate of 1 per cent of the gross amount of sale of goods or provision of service or both, facilitated through its digital or electronic facility or platform.
The Finance Act, 2020, also inserted sub-section (1 H) in section 206C in the I-T Act which mandates that with effect from October 1, 2020, a seller will collect 0.1 per cent tax from the buyer if the sale consideration exceeds Rs 50 lakh or if aggregate sale value exceeded Rs 50 lakh in any previous year.
The Central Board of Direct Taxes (CBDT) said it has received representations regarding difficulties in implementing the provisions of Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) contained in section 194-O and sub-section (1 H) of section 206C of the Act in case of certain exchanges and clearing corporations.
It has been stated that sometime in these transactions there is no one-to-one contract between the buyers and the sellers.
The CBDT said the new introduced TCS provisions would not apply to transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by recognised clearing corporation, including recognised stock exchanges or recognised clearing corporation located in International Financial Service Centre.
It would also not apply to transactions in electricity, renewable energy certificates and energy-saving certificates traded through power exchanges.
Nangia Andersen LLP Partner Sandeep Jhunjhunwala said the clock has been ticking for the onset of TDS and TCS provisions with effect from October 1 on e-commerce transactions and on sale of goods exceeding Rs 50 lakh.
"Aiming for collection of pretty penny from the growing digital economy, TDS under Section 194-O on e-commerce sale of goods or provision of services along with TCS under Section 206(1H) on aggregate sale of goods worth above Rs 50 lakh in a year were introduced in the budget and these tax collection provisions are applicable from October 1, 2020.
"On Section 206C(1H), the current circular clarifies on several puzzling aspects such as no adjustment for sales return, discount or GST component and applicability on receipts post-October 1, even if sale was made before that period," Jhunjhunwala said.
However, several ambiguous aspects need more clarity such as the applicability of TCS provisions on deemed exports within India to Special Economic Zone (SEZ) and Export Oriented Units, free of cost sales and warranty replacements, he said.
On e-commerce TDS, the most significant uncertainty is around the treatment of subsequent returns of goods by customers and consideration of discount codes and gift vouchers for computing amounts to be subject to TDS, he added.
Foreign e-commerce operators also need to comprehend the interplay between Section 194-O and equalisation levy when the supply of goods or provision of services encompasses resident e-commerce participants, Jhunjhunwala added.
AKM Global Tax Partner Amit Maheshwari said, "CBDT has bought in much-needed guidelines on the applicability of section 194O by clarifying on the calculation of threshold, non-applicability on payment gateways and exchanges, and no adjustment for sale return, discounts or indirect taxes."
"Though the guidelines are welcome, one has to see whether this additional burden of compliances would be worth it," he added.
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