Guidelines under section 194Q of the Income-tax Act, 1961

F. No. 370142/26/2021-TPL
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Direct Taxes)
Dated: 30th June, 2021

Sub.: Guidelines under section 1940 of the Income-tax Act, 1961 - reg.

Finance Act, 2021 inserted a new section 194Q in the Income-tax Act 1961 (hereinafter referred to as "the Act") which takes effect from I st day of July, 202 I. It appliesto any buyer who is responsible for paying any sum to any resident seller for purchase of anygoods of the value or aggregate of value exceeding fifty lakh rupees in any previous year. The buyer, at the time of credit of such sum to the account of the seller or at the time of payment, whichever is earlier, is required to deduct an amount equal to 0.1 % of such sum exceeding fifty lakh rupees as income tax.

2. Buyer is defined to be person whose total sales or gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of good is carried out. Central Government has been authorised to specify by notification in the Official Gazette, person who would not be considered as buyer for the purposes ofthis section.

3. Sub-section (3) of section 194Q of the Act empowers the Board (with the approval ofthe Central Government) to issue guidelines for the purpose of removing difficulties. Various representations have been received by the Board for issuing guidelines for removing certaindifficulties. In exercise of power contained under sub-section (3) of section 194Q of the Act,the Board, with the approval of the Central Government, hereby iss'ues the followingguidelines. These guidelines at some places have also tried to remove difficulties inimplementing the provisions of section 194-0 and sub-section (I H) of section 206C of the Act using power contained in sub-section (4) of section 194-0 of the Act and sub-section (II) of section 206C of the Act.

4. Guidelines

4.1 Applicability on transactions carried through various Exchanges:

4.1.1 It has been represented that there are practical difficulties in implementing the provisions of Tax Deduction at Source CTDS) contained in section 194-Q of the Act in case of certain exchanges and clearing corporations. It has been stated that sometime in thesetransactions there is no one to one contract between the buyers and the sellers.

4.1 .2 In order to remove such difficulties, it is provided that the provisions of section 194Q of the Act shall not be applicable in relation to,-
 
Ci) 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 savingcertificates traded through power exchanges registered in accordance with Regulation 21 of the CERC; and

For this purpose,-

(i) "recognized clearing corporation" shall have the meaning assigned to it in clause

(i) ofthe Explanation to clause (23 EE) of section 10 of the Act;

(ii) "recognized stock exchange" shall have the meaning assigned to it in clause (ii) of the Explanation I to sub-section (5) of section 43 of the Act; and

(iii) "International Financial Services Centre" shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005.

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