Circular No. 13/2021, issued by the Central Board of Direct Taxes (CBDT) on June 30, 2021, provides clarifications on various provisions of the Income Tax Act, 1961, related to tax deduction at source (TDS) on purchase of goods exceeding Rs. 50 lakh (later increased to Rs. 10 crore through Circular No. 20/2021). Here are some of the key clarifications:

Applicability of Section 194Q:

• The circular clarifies that Section 194Q, which mandates TDS on purchase of goods exceeding Rs. 10 crore, applies only to the buyer’s total sales or gross receipts or turnover from the business carried on by them, not their overall turnover or gross receipts exceeding Rs. 10 crore.
• The provision applies to purchases made on or after July 1, 2021.

GST and TDS:

• If the GST component is separately indicated on the invoice and tax is deducted at the time of crediting the amount to the seller’s account, the TDS is calculated without including the GST. However, if the tax is deducted on payment (before credit), it applies to the entire amount as identifying the VAT/Excise/Sales tax component later is not possible.
• The clarification also applies to purchase returns for non-GST products liable to VAT/Excise/Sales tax/CST etc.

E-commerce transactions:

• If an e-commerce operator deducts TDS under Section 194Q on a transaction, the seller is not required to collect tax under Section 206C(1H) on the same transaction. However, the primary responsibility for TDS still lies with the e-commerce operator, and collecting tax by the seller doesn’t excuse them from any liability.

Other clarifications:

• The circular also clarifies the TDS applicability on payments made to contractors and sub-contractors, payments to resident companies engaged in the business of supply of actionable claims, and the timeline for depositing the deducted tax.