• Notification Date: 27-11-2021
• Notification No: 59/2021-22

Relief on TCS, TDS rules offered to businesses

The Central Board of Direct Taxes (CBDT) on Thursday offered relief to businesses on provisions relating to mandatory collection or deduction of tax at source (TCS, TDS) under a set of new guidelines issued to remove difficulties, showed an official order.

As per the order, e-auction services carried out through an electronic portal will not be subject to the TDS provision applicable to e-commerce operators if the auction is only meant for price discovery and the actual sale takes place independent of it.

This relief from the 1% TDS requirement applicable under section 194-O of the Income Tax Act effective from October 2020 comes with six riders to ensure that if the e-commerce operator is involved in any way to facilitate the sale, the TDS provision will apply.

The riders also say that the price discovered through the platform should not necessarily be the price at which the transaction takes place and it ought to be up to the discretion of the online platform’s client to accept the price or to directly negotiate with the counter-party.

The relaxation takes into account the practical difficulties faced by e-commerce operators in deducting TDS and makes it easier to do business. Besides, it also encourages transparent electronic transactions by making it less onerous.

In the same order, CBDT also offered more flexibility in the TDS provision relating to payments made to a seller where the tax component other than GST is known. The TDS provision in such cases will apply to the amount excluding the tax component. This flexibility is already available where the transaction is covered by GST. The TDS and TCS provisions apply only on those cases above specified monetary threshold so that small businesses are not affected by this provision. The clarification also specifically excluded government entities other than public sector companies from the requirement of TDS provision under section 194Q of the Income Tax Act as these are not entities engaged in a business or commercial activity.

Both TDS and TCS are used by the tax authority as a means of ensuring greater accountability on economic activity and to ensure that transactions and incomes do not escape assessment and taxation. The government has been discouraging cash payments and has been encouraging electronic transactions as part of efforts to widen the tax base.