The Central Commission for Direct Taxes (CBDT) clarified that the withholding tax (TDS) provided for e-commerce operators under Article 194-O of the Income Tax Law will not apply. not to online auction activities conducted by online auctioneers.
This exemption will only be available if the six facts listed by the Central Direct Taxation Council in its latest circular are satisfied. This clarification will not apply if any of these facts are not satisfied.
In addition, it is specified that the buyer and the seller would always be required to deduct / collect the tax in accordance with the provisions of Articles 194Q and 206C (IH) of the Law, as the case may be.
The six facts listed are:
a) The auctioneer performs electronic auction services for his clients on his electronic portal and is only responsible for the price discovery that is reported to the client.
(b) The price so discovered through the electronic auction process is not necessarily the price at which the transaction takes place and it is up to the customer to accept the price or to negotiate directly with the counterparty.
(c) The buy / sell transaction takes place directly between buyer and seller outside of the electronic portal maintained by the online auctioneer and price discovery only serves as a starting point for negotiation and negotiation. conclusion of the purchase / sale.
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(d) The auctioneer is not responsible for facilitating the buying and selling of goods for which the electronic auction has been conducted on its electronic portal, except to the extent of price discovery.
(e) Transactions payments are made directly between buyer and seller outside of the electronic portal and the auctioneer has no information on the quantum and payment schedule which are mutually agreed upon. by the client and the counterparty.
(f) For payment made to the electronic auctioneer for the provision of electronic auction services, the customer deducts tax under the relevant provisions of the Law other than Article 194-0 of the Law.
The Central Council of Direct Taxes had received representations from various stakeholders involved in the activity of providing electronic auction services through electronic portals owned, operated or maintained by them (hereinafter referred to as “electronic auctioneer”).
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It has been stated that in an electronic auction, the auctioneer involved in the conduct of the electronic auction through their portal is only responsible for finding out the price for the sale / purchase of goods or services and the outcome of the auction. auction report is submitted to the customer. The customer can be the buyer or the seller. Participants in auctions are sellers (if the customer is a buyer) or buyers (if the customer is a seller). The sale / purchase transaction is carried out directly between the buyer and the seller and not via the electronic portal of the online auctioneer. In addition, the price thus discovered may be further negotiated between the parties without the knowledge of the online auctioneer. In such a scenario, it was represented that the provisions of article 194-0 of the Law do not apply since the sale / purchase transaction itself does not take place via the electronic portal.
Deduction at the time of credit
It may be recalled that the 2020 finance law inserted a new article 194-0 in the 1961 law on income tax, which provides that from 1 October 2020, an e-commerce operator must deduct income tax at the rate of one percent of the gross amount of the sale of goods or the provision of services or both facilities through its digital or electronic facility or platform.
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However, an exemption from said deduction has been provided for in the case of certain persons or the undivided Hindu family subject to compliance with specified conditions.
This deduction must be made at the time of crediting the amount of that sale or service or both to the account of an e-commerce participant or at the time of payment of the latter to that e-commerce participant, whichever occurs first. contingency.
In another related clarification, the Central Council for Direct Taxes said an issue had been raised in cases where a government department would be considered a “seller” for the purposes of tax deduction under the article 194Q of the law.
In this regard, it is specified that for the purposes of article 194Q, the central government or the government of the State will not be considered as “seller” and no tax will be deducted by the buyer, in cases where a department of the central or state government government is a seller of goods, the Central Direct Taxation Council circular said on Thursday.
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The Central Direct Taxation Council also clarified that any other person, such as a public sector enterprise or a company established under central or outdated law or any other such body, authority or entity, would be required to comply with the provisions of section 194Q and will be deducted accordingly.
The Central Direct Taxation Council also issued a separate clarification on adjusting various state levies and taxes other than GST.