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Request for amending S. 206C(1H) of Income Tax Act, 1961 due to possible double levy of tax on account of applicability of both TDS and TCS provisions, in case of e-commerce transaction
Request for amending S. 206C(1H) of Income Tax Act, 1961 due to possible double levy of tax on account of applicability of both TDS and TCS provisions, in case of e-commerce transaction

June 21, 2021

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S.206C(1H) was introduced under Income Tax Act, 1961 (IT Act) w.e.f. October 1, 2020, which provides for levy of Tax Collection at Source (TCS) @ 0.1% of sale consideration, on sale of goods to a buyer on value exceeding INR 50 lakhs. Further, 2nd proviso to S. 206C(1H) states that “provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on goods purchased by him from the seller and has deducted such amount.

As per S.194-O of IT Act, once tax has been deducted by E-Commerce Operator (ECO), the said transaction will not be liable to Tax Deduction at Source (TDS) under any other provision of the IT Act. Also, S.194Q states that tax shall not be deducted under this section, if tax is deductible under any other provision of the IT Act.

Since S. 194-O overrides S.194Q, sale of goods on e-commerce platform will be subjected to TDS under S.194-O and consequently, S. 194Q will not apply. To this extent, any overlap between S.194-O and S.194Q of IT Act has been addressed and resolved.

Further, as per 2nd proviso to S.206C(1H), TCS will not apply if buyer is liable to deduct tax under any other provision of IT Act on goods purchased by him from the seller and has deducted such tax. Hence, where both S 194Q and 206C(1H) applies, any overlap between S. 194Q and S. 206C(1H) has also been addressed and resolved.

However, there is lack of clarity on whether seller could still be required to do TCS under S 206C(1H), in case of e-commerce transaction facilitated by ECO, which has already been subjected to TDS under 194-O of IT Act.

This is because the language used in 2nd proviso to S. 206C(1H) suggests that this section will not apply only if ‘buyer’ is liable to deduct tax under any other provision of IT Act on the goods purchased by him from the seller. The section specifically does not cover ECO or does not provide that if a particular transaction has been subjected to TDS under any other provisions of the IT Act (including S. 194-O), then TCS shall not apply. Hence, in cases where ECO is liable to deduct tax under S. 194-O and not the buyer, it could be interpreted that S.206C(1H) may still apply even if tax is deducted on the e-commerce transaction under S. 194-O by the ECO. Thus, there could be overlap which is specifically not addressed unlike other overlaps (as discussed above).

Due to the above anomaly and to avoid risk of being regarded as assessee-in-default, even the seller could, on a conservative basis, consider levying TCS on a transaction on which ECO has already deducted tax under S 194-O (as the exception of not collecting TCS from buyer is made available only where tax is deducted at buyer’s end and not at the ECO’s end under S. 194-O). This will lead to multiple levy of tax by way of TCS and TDS on the same transaction, which is clearly not in spirit and intent of introducing S 194-O and S 206C1(H) provisions that were primarily introduced to widen and deepen the tax net.

Considering the intent, the above anomaly and overlap seems to be an unintended drafting issue. In this regard, we have requested Ministry of Finance (MoF) to amend 2nd proviso to S. 206C(1H) of IT Act as follows:
“Provided further that the provisions of this sub-section shall not apply, if tax at source has been deducted under any other provision of this Act”.

Alternatively, MoF should clarify that the term ‘buyer’ under 2nd proviso to S. 206C(1H) of IT Act includes an e-commerce operator as defined under S 194-O. This would exclude applicability of TCS in cases where tax has been deducted under S.194-O on an online transaction.

This would also ensure that there is no overlap of TDS provision under S. 194-O and TCS provisions under S. 206C(1H) in case of e-commerce transaction and thus, will reduce undue compliance burden on sellers and will provide clarity to the Industry, thereby avoiding litigation in the future.

We hope you will find this update useful. We will keep you posted on further developments in this regard.


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