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 applies to any buyer who is responsible for paying any sum to any resident seller for purchase of any goods 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.

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.

Sub-section (3) of section 194Q of the Act empowers the Board (with the approval of the Central Government) to issue guidelines for the purpose of removing difficulties. Various representations have been received by the Board for issuing guidelines for removing certain difficulties. 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 following guidelines. These guidelines at some places have also tried to remove difficulties in implementing 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.

Refer YouTube video link on Guidelines under section 194Q of the Income-tax Act, 1961Circular No. 13 of 2021 | Dated: 30th June, 2021

Issue clarified under guidelines

1. Applicability on transactions carried through various Exchanges

2. Calculation of threshold for the financial year 2021-22

3. Adjustment for GST, purchase returns

4. Whether non-resident can be buyer under section 194Q of the Act?

5. Whether tax is to be deducted when the seller is a person whose income is exempt

6. Whether tax is to be deducted on advance payment?

7. Whether provisions of section 194Q of the Act shall apply to buyer in the year of incorporation?

8. Whether provisions of section 194Q of the Act shall apply to buyer if the turnover from business is 10 crore or less?

9. Cross application of section 194-0, sub-section (111) of section 206C and section 194Q of the Act.

Refer copy of circular: