New TDS/TCS rules not for power trading, insurance agents

New Delhi,  The government has exempted power trading transactions from the purview of tax deducted at source (TDS) and tax collected at source (TCS) to prevent practical difficulties in implementing the levy from affecting functioning of the exchanges.

The Finance Act, 2020 inserted new section 194-0 in the Income Tax Act 1961 which mandated that from October 1, an e-commerce operator shall deduct income tax at the rate of one per cent of the gross amount of sale of goods or provision of service or both, facilitated through its platform. Also, a sub-section (1H) in section 206C of the Act was inserted that mandated deduction of a sum of 0.1 per cent on all e-commerce transactions above Rs 50 lakh.

The Central Board of Direct Taxes has now exempted transactions in securities and commodities, traded through recognised stock exchanges or cleared and settled by the recognised clearing corporation, including recognised stock exchanges or recognised clearing corporation located in International Financial Service from this levy.

Also, all transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges will also be exempt from the new tax.

It has been represented that there are practical difficulties in implementing the provisions of TDS and TCS in case of certain exchanges and clearing corporations. “It has been stated that sometime in these transactions there is no one to one contract between the buyers and the sellers,” a CBDT circular announcing the exemptions said.

On the same principle, the CBDT has also exempted insurance agents from deducting TDS/TCS on any transaction involving the insurance company and the buyer in the subsequent years of a policy, except the first year when the policy is bought. But even in subsequent years, the insurance company would be liable to deduct the tax on commission paid to agents.

The provisions on TCS will also not apply on sale consideration received for fuel supplied to non-resident airlines at airports in India.