Income tax department exempts e-auctioneers from 1% TDS

The income tax department has exempted e-auctioneers from tax deducted at source (TDS) imposed at the rate of one per cent on e-commerce platforms, subject to certain riders.

The department issued a circular to clarify this position since 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.

However, an e-auctioneer has to satisfy certain conditions to get the exemption such as -- the sale and purchase takes place directly between the buyer and the seller outside the electronic portal maintained by the auctioneer and price discovery only acts as the starting point for negotiation.

The Finance Act, 2020 had imposed TDS from October one 2020 on an e-commerce operator at the rate of one per cent of the gross amount of sale of goods or services. 

The Finance Act, 2021 imposed TDS at the rate of 0.1 per cent on buyers of any goods more than Rs 50 lakh from domestic sellers. This came into effect from July, 2021. 

While the department had earlier clarified whether the goods and services tax (GST) imposed on payments would be deducted for calculating 0.1 per cent TDS, the position was not clarified in relation to excise duty, value added tax etc. 

On similar lines with GST, the department clarified that when these taxes are separately disclosed on invoices, then they have to be deducted before calculating the TDS. Otherwise, TDS would fall on the entire value of the invoice. 

The 0.1 per cent TDS would not be imposed on the department of the government which is not carrying out any business or commercial activity, said Sandeep Sehgal, director tax and regulatory at AKM Global, a tax and consulting firm. However, public sector undertakings under the Central or state Acts would have to pay this tax if they buy goods over Rs 50 lakh, he said.

"The circular shall certainly add to the clarity on the applicability of TDS provisions," Sehgal said.

Om Rajpurohit, director (corporate and international tax) with AMRG & Associates, said the circular has attempted to provide more clarity and relief to those taxpayers whose practical issues left unattended, particularly in the case of buyers of petroleum products (which is outside the scope of GST) where TDS on state taxes have resulted in an unnecessary cascading effect despite the fact that the amount of states taxes are shown separately on the invoice.

"As a result, the clarification offered will be extremely beneficial to them as well as buyers who purchase goods from government department," he said.