The Central Board of Direct Taxes (CBDT) has clarified that tax deduction at source (TDS) stipulated for e-commerce operators under section 194-O of the income tax law will not apply for e-auction activities carried out by e-auctioneers.

This exemption will be available only if all the six facts listed by the Central Board of Direct Taxes in its latest circular are satisfied. This clarification will not apply if any of these facts are not satisfied.

Further, it is clarified that the buyer and seller would still be liable to deduct/ collect tax as per the provisions of section 194Q and 206C (I H) of the Act, as the case may be.

Prerequisites

The six facts listed are:

a) The e-auctioneer conducts e-auction services for its clients in its electronic portal and is responsible for the price discovery only which is reported to the client.

(b) The price so discovered through e-auction process is not necessarily the price at which the transaction takes place and it is up to the discretion of the client to accept the price or to directly negotiate with the counter-party.

(c) The transaction of purchase/sale takes place directly between the buyer and the seller party outside the electronic portal maintained by the e-auctioneer and price discovery only acts as the starting point for negotiation and conclusion of purchase/sale.

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(d) The e-auctioneer is not responsible for facilitating the purchase and sale of goods for which e- auction was conducted on its electronic portal except to the extent of price discovery.

(e) Payments for the transactions are carried out directly between the buyer and the seller outside the electronic portal and the e-auctioneer does not have any information about the quantum and the schedule of payment which is decided mutually by the client and the counterparty.

(f) For payment made to the e-auctioneer for providing e-auction services, the client deducts tax under the relevant provisions of the Act other than section 194-0 of the Act.

Representations from stakeholders

The Central Board of Direct Taxes had received representations from various stakeholders involved in the business of carrying out e-auction services through electronic portals owned, operated or maintained by them (hereinafter referred as ‘e-auctioneer’).

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It has been stated that in an e-auction, the e-auctioneer involved in conducting the e-auction through its portal is responsible only for the price discovery for the sale/purchase of goods or services and the result of the auction report is submitted to the client. The client could be the buyer or the seller. Participants in the auctions are sellers (if client is buyer) or buyers (if client is seller). The transaction of sale/purchase is being carried out directly between the buyer and the seller an not through the electronic portal of the e-auctioneer. Further, the price so discovered can be further negotiated between the parties without the knowledge of the e-auctioneer. In such a scenario, it had been represented that provisions of section 194-0 of the Act do not apply as the transaction of sale/purchase itself is not taking place through the electronic portal.

Deduction at time of credit

It maybe recalled that Finance Act, 2020, had inserted a new section 194-0 in the Income-Tax Act, 1961, which mandates that with effect from October 1, 2020, an e-commerce operator should deduct income-tax at the rate of one per cent of the gross amount of sale of goods or provision of services or both facilitated through its digital or electronic facility or platform.

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However, exemption from said deduction has been provided in case of certain individuals or Hindu Undivided Family subject to fulfilment of specified conditions.

This deduction is required to be made at the time of credit of the amount of such sale or service or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant, whichever is earlier.

Government departments

In another related clarification, the Central Board of Direct Taxes has said that Issue has been raised in cases where any Department of the Government will be considered a ‘seller’ for the purposes of deduction of tax under section 194Q of the Act.

In this regard, it is hereby clarified that for the purposes of section 194Q, the Central Government or State Government shall not be considered as ‘seller’ and no tax is to be deducted by the buyer, in cases where any Department of Central or State Government are seller of goods, the Central Board of Direct Taxes circular issued on Thursday said.

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The Central Board of Direct Taxes also clarified that any other person, such as a Public Sector Undertaking or corporation established under Central or Stale Act or any other such body, authority or entity, would be required to comply with the provisions of section 194Q and tax shall be deducted accordingly.

The Central Board of Direct Taxes also issued a separate clarification on adjustment of various state levies and taxes other than GST.

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