Sec 194-O: TDS by e-Commerce operator

Section 194-O has been introduced in the Union Budget 2020. According to Section 194-O of the Income Tax Act, 1961 which is effective from 1st October 2020, an e-Commerce operator [ECO] is required to deduct TDS for facilitating any sale of goods or providing services through an e-Commerce participant, irrespective of whether the payment is collected by ECO or the purchaser makes direct payment to the e-commerce participants.

The salient features of Section 194-O are as below

a) An ECO is liable to deduct TDS @ 1 percent on the gross amount.

b) TDS is applicable on the sale of goods as well as services through the ECO.

c) TDS is not applicable where the value of transaction of an Individual or HUF does not exceed Rs. 5 lakh annually.

d) Amount directly collected by the supplier from the buyer would also attract TDS in the hands of the ECO.

e) TDS provision will attract either at the time of credit to the e-commerce participants or payment by any mode or where the purchaser of goods or services makes payment directly to e-commerce participants whichever is earlier.

Who are e-Commerce operators and participants?

E-Commerce Operator: An e-Commerce operator is a person who owns, operates, or manages a digital/electronic facility for the sale of goods and services. He is responsible for making payments to the e-Commerce participant on such sales.

E-Commerce Participant: An e-Commerce participant is a person who sells goods, services, or both through an electronic facility provided by an e-commerce operator. He must be a resident of India.

Scope of Section 194-O of Income Tax Act,1961

E-Commerce operators shall be liable to deduct TDS @1% u/s 194-O of the Income Tax Act on the gross amount, at the time of credit of the amount of sale of goods, services, or both to the account of an e-commerce participant or at the time of making payment to an e-Commerce participant by any other mode, whichever is earlier.

E-commerce operator is not required to deduct TDS if the gross amount of sale of goods, services, or both during the previous year does not exceed Rs 5 lakh and if the e-Commerce participant has furnished his PAN or Aadhaar.

If the e-Commerce participant does not furnish his PAN or Aadhaar, TDS must be deducted at the increase rate of 5% instead of @1%, as per provision of Section 206AA.

Exceptions to Section 194O, if any

Section 194-O (2) says that no deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of an e-commerce participant, being an individual or Hindu undivided family, where 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.

Further, Sub-Section (3) of Section 194-O says that if a transaction in respect of which tax has been deducted by the e-commerce operator under Section 194-O (1), or which is not liable to deduction under sub-section (2), shall not be liable to tax deduction at source under any other provision.

Provided that the provisions of this subsection shall not apply to any amount or aggregate of amounts received or receivable by an e-commerce operator for hosting advertisements or providing any other services which are not in connection with the sale or services referred to in sub-section (1).

Note: Gross amount of sale shall not include the component of GST, if separately mentioned in the invoice [Refer Circular 23/2017 Dated 19th July 2017 ]

Disclaimer: The content of this article is intended to provide general guidance on the subject matter. Specialist advice may be sought about your specific circumstances.

The Author is a Fellow member of The Institute of Chartered Accountants of India, New Delhi & a Fellow member of The Institute of Cost Accountants of India, Kolkata. He can also be reached at gstresolve@gmail.com.