The Central Government has by a Circular dated June 30, 2021, issued guidelines on applicability of Section 194Q of the Income-tax Act, 1961 (‘ITA’), key aspects of which are set out below. Section 194Q provides that a buyer who is responsible for paying any sum to any resident for purchase of goods of value exceeding ₹ 50 lakh, will be required to deduct an amount equal to 0.1% of such sum exceeding ₹50 lakh as income-tax.
i. Section 194Q will not apply to transactions in securities and commodities traded through recognised stock exchanges or cleared and settled by recognised clearing corporations, including those located in an IFSC.
ii. Section 194Q will not apply to a non-resident buyer whose purchase of goods from a seller resident in India is not effectively connected with a permanent establishment of such non-resident in India.
iii. If a transaction is both within the purview of Section 194Q of the ITA as well as Section 206C(1H) of the ITA, then tax is required to be deducted under Section 194-Q of the ITA. Once the buyer has deducted the tax on a transaction, the seller is not required to collect the tax under Section 206C(1H) of the ITA on the same transaction. However, if for any reason, tax has been collected by the seller under Section 206C(1H) of the ITA, before the buyer could deduct tax under Section 194Q of the ITA on the same transaction, such transaction would not be subjected to tax deduction again by the buyer.