Section 194-O: TDS on Payment of Certain Sums by E-Commerce Operator to E-Commerce Participant

• Taxation
• ||
• September 26, 2020

Section 194 O is a newly introduced section in The Finance Act, 2020 with an intend to tax the transactions performed between E-Commerce Operator and E-Commerce Participant.

With the increase in the number of E-commerce operators (such as Flipkart, Amazon, Facebook, etc.), people also prefer purchasing/selling of the products over digital platform which in turn resulted in increase in the number of transactions between the parties involved. Now, the tax authorities were not able to identify those small sellers of goods or services who were selling goods/providing services over E-commerce platform and are not filing their income tax return due to which government was facing a loss in revenue. So, to overcome this issue a new idea of deducting tax (TDS) is imposed on E-commerce operator. Hence, the e-commerce operator is liable to deduct tax on the payment made to e-commerce participant.

E-Commerce Operator
An E-commerce Operator is a person who owns, operates or manages digital or electronic facility or platform for electronic commerce, i.e., he provides the digital platform to e-commerce participants to sell their goods and provides payments to them on such sales.

E-Commerce Participant
An E-commerce participant is a person resident in India selling goods or providing services or both, including digital products, through digital or electronic facility or platform provided by e-commerce operator.

Applicability
TDS on e-commerce operators is applicable from 1^st October 2020.

Rate of Deduction
E-commerce operator shall deduct TDS @1% or @5% (for non-furnishing of PAN/Aadhaar) of the gross amount of sales or services or both, at the earliest of the following:

• Credit of amount of sale or services or both to the account of the e-commerce participant;

or

• At the time of making payment to such e-commerce participant by any mode

Further, it has been cleared that any payment made directly to the e-commerce participant by the purchaser of goods or recipient of services for the sale of goods/services/both, facilitated by e-commerce operator, shall be included in the gross amount of sales or services and deemed to be the amount credited or paid by the e-commerce operator and tax shall be deducted accordingly.

Exemption
In case the e-commerce participant is a resident individual or HUF, no tax shall be deducted if

• The gross amount of such sale or services or both during the previous year does not exceed five lakh rupees;

and

• Such e-commerce participant has furnished his Permanent Account Number or Aadhaar number to the e-commerce operator.

Other Important points

• No TDS is required to be deducted under any other sections, where TDS has already been deducted u/s 194 O or not deducted due to the above mentioned exemption.
• No TDS shall be deducted for any amount received or receivable by the e-commerce operator for hosting advertisements or providing any other services which are not related or in connection with the goods or services as provided by e-commerce participant.

Purpose of Section 194O
The purpose of the introduction of Section 194O is to widen the TDS base by bringing e-Commerce participants under the tax. Of late, customers prefer digital platforms for buying or selling of goods and services because:

From sellers’ perspective: It requires less cost for creating the setup and less effort for search of buyers.

From buyers’ perspective: Many options are available at one platform and comparison of products becomes very easy.

This resulted in an increase in number of e-Commerce users over a period of time. It is hard to identify small sellers (e-Commerce participants) who don’t file their income tax returns. Thus, government has enlarged the tax base to bring such small sellers under the tax base.

At AJSH, we assist our clients in dealing with various corporate matters (Company incorporations, statutory audits, ROC Compliances, Company winding up), ITR Filings, TDS Compliance, and related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about TDS under section 194O, kindly contact us.