This issue of TaxCognito, which in Latin means 'awareness about tax, seeks to provide you an insight into significant developments that have taken place very recently in areas of taxation in India.

Date: 6 July 2021
Tax Cognito: Recent Developments in Taxation
Clarifications on New TDS Regime

There have been significant changes in TDS (tax deduction at source) related obligations with effect from 1st July 2021. These changes involve certain doubts and confusion. Hence, the Central Board of Direct Taxes (CBDT) has issued several clarifications vide circular dated 30th June 2021 answering various questions in connection with TDS liability under Section 194Q of the Income Tax Act, 1961. The provision is applicable from 1st July 2021 onwards and makes it mandatory to deduct or withhold tax at source on purchase of goods from an Indian resident seller, subject to certain conditions.

1. Categories of transactions exempted: CBDT has clarified that Section 194Q shall not apply to:
  • Transactions in securities and commodities effected through recognize stock exchanges or cleared and settled by recognized clearing corporation (including those located in International Financial Service Centre).
  • Transactions in electricity renewable energy certificates and energy-saving certificate stress through registered exchanges.
2. Determination of threshold of Rs.50 lakhs for Financial Year (FY) 2021-22
  • Any sum credited ‘or’ paid before 1st July 2021 shall not be subject to TDS though it will be counted to determine threshold turnover.
  • Thus, if a buyer has already credited or paid Rs.50 lakh or more up to 30th June 2021 to a seller, then TDS under section 194Q shall apply on all credit or payment during FY 2021-22 on or after 1st July 2021, to such seller.
3.  Adjustment of GST and Purchase Returns etc.
  • When TDS is deducted at the time of credit, the amount on which TDS will be computed shall exclude GST.
  • If TDS is deducted on payment basis before credit (such as an advance), GST shall be included in the base amount as it is not possible to identity that payment with GST component of the amount to be invoiced in future.
  • For purchase returns, TDS amount may be adjusted against the next purchase from the same seller. No adjustment is required if purchase return is replaced by the goods.
4.  Whether TDS requirement u/s 194Q will apply if buyer is non-resident?
  • No, unless the purchase of goods from Indian resident seller is effectively connected with the permanent establishment (taxable presence) of such resident in India.

5.  Whether tax is to be deducted when the seller is a tax-exempt person?

  •  No, provided seller’s whole income is tax-exempt (not just a part).

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

  •  Yes.

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

  • No, because the pre-requite of buyer having minimum sales / gross receipts of Rs.10 crore in the preceding year would not be satisfied.

8. Whether turnover / gross receipts of preceding year from non-business activity is to be counted for calculating the threshold of Rs. 10 crore?

  •  No. Only the turnover / gross receipts from business activity shall be counted.

9. Cross application of Sections 194O and 194Q : It is noteworthy that Section 194O required TDS @ 1% on payment or credit of sales amount by an e-commerce operator to e-commerce participant. 

  • No TDS u/s 194Q if TDS has been deducted by an e-commerce operator on a transaction under Section 194O.
  • If a transaction is within the purview of both Section 194O as well as Section 194Q, tax is required to be deducted under Section 194O and not Section 194Q.
Important Judgements

Income Tax
  • Gujarat High Court has held that where assessee-company wrote off outstanding interest on advances paid to its subsidiary as irrecoverable when net worth of subsidiary got eroded, assessee's claim of bad debt was to be allowed as a deduction without expecting assessee to prove that debts had actually become bad. [2021] 127 813 (Gujarat).
Transfer Pricing
  • ALP and consequential transfer pricing adjustments are contemplated only in respect of international transactions with AEs and not entity level transactions (which also include transactions with non-AEs). [2021] 127 810 (Pune - Trib.)
  • Once expenses incurred by assessee have been finally included in its total operating costs, similar natured costs incurred by comparables, if any, should also be given a parallel treatment. [2021] 127 810 (Pune - Trib.)
GST / Indirect Taxes
  • The Madras High Court has held that an association of contractors was not entitled to maintain a writ petition and it were the aggrieved members of such association alone who were competent to file such a writ petition. [2021] 128 36 (Madras)
  • Kerala High Court directs GST Council to forward representation of petitioner to Government for inclusion of petrol and diesel under GST regime. [2021] 128 42 (Kerala)
  • The West Bengal GST AAR has held that where the supplier rendered services by way of arranging or facilitating sales of goods for various overseas suppliers and the same were not being done on his own account, all conditions necessary to be an ‘intermediary’ as defined in section 2(13) of IGST Act were satisfied and, consequently, such services would not be considered as 'export of service' because the condition of place of supply being outside India would not be satisfied. [2021] 128 35 (AAR-WEST BENGAL)
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Significant Judgments of our team
Chambers of Rajan & Indraneel 
T: +91 11 41000224, 41030225| Fax:+91 11 29239074 
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N 103 Greater Kailash - I, New Delhi - 110048, India.
About us
Chambers of Rajan & Indraneel is a premier full service law firm headquartered at New Delhi, India. The Firm represents amalgamation of vast experiences and practices of two eminent lawyers. Indranil Ghosh is highly reputed as a disputes lawyer. He was a senior partner and head of litigation practice in one of the oldest Indian law firm Fox Mandal for several decades before setting up his own practice. Rajan D Gupta is a rank holder Chartered Accountant turned Corporate Lawyer. He is also a licensed Insolvency Resolution Professional. He has been associated with internationally renowned big law firms in past and has held senior level positions in firms like PwC, Fox Mandal, Khaitan & Co. and SRGR Law, etc. before starting the Firm.

We have a team of experienced Lawyers, Chartered Accountants, Company Secretaries and Insolvency Resolution Professionals with access to network of high quality experienced lawyers in all major commercial cities of India.

The Firm offers a wide range of expert legal services in the areas of corporate and commercial laws and specializes in representing major foreign and domestic corporations with diverse business interests in India. The Firm is professionally equipped to handle large sized and complex corporate transactions like Mergers & Acquisitions, Corporate Restructuring, Joint Ventures, Inbound & Outbound Investments, Private Equity and Venture Capital Investment Transactions, Real Estate Transactions, Infrastructure Projects, Project Finance, Power Projects, Non-Conventional Energy Projects, Highways & Road Projects and Corporate Taxation as well as GST, etc. The Firm also offers proven capabilities in litigation and dispute resolution practice areas, especially in handling international and domestic arbitrations as well as litigation in Supreme Court, various High Courts of India and various judicial and quasi-judicial tribunals/forums including at National Client Law Tribunal, Appellate Tribunals, Tax Tribunals, Competition Commission, Electricity Tribunal, Telecom Disputes Tribunal, Designated Authorities and other adjudicatory bodies.

We have set up a Japan Business Desk (JBD) in order to serve our Japanese clients in a better way. The endeavour of JBD is to act as a bridge between our professionals and clients from Japan so as to ensure that there are no barriers as to linguistic and cultural differences. This will indeed facilitate Japanese corporates doing business in India. 
This newsletter contains general information available in public domain at the time of its preparation. It is intended as a general news update and is not intended to be comprehensive nor to provide specific business, financial, investment, legal, tax or other professional advice or opinion or services. This newsletter is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Before making any decision or taking any action that may affect you or your business, you should consult a qualified professional adviser and refer to the source pronouncement/documents on which this business alert is based. It is also expressly clarified that this newsletter is neither a solicitation nor an invitation of any sort whatsoever or a source of advertising from our firm or any of its partners or lawyers or other professionals to create any adviser-client relationship. Whilst every effort has been made to ensure the accuracy of the information contained in this news alert, this cannot be guaranteed, and neither our firm nor any related person/entity shall have any liability to any person or entity that relies on the information contained in this publication. Any such reliance is solely at the user's risk.
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