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Section 194O | TDS on E-commerce Operator

CA.R.S.KALRA 
on 02 March 2021

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[Applicable from April 1, 2020]

194-O. (1) Notwithstanding anything to the contrary contained in any of the provisions of Part B of this Chapter, where sale of goods or provision of services of an e-commerce participant is facilitated by an e-commerce operator through its digital or electronic facility or platform (by whatever name called), such e-commerce operator shall, at the time of credit of amount of sale or services or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier, deduct income-tax at the rate of one per cent of the gross amount of such sales or services or both.

Explanation.- For the purposes of this sub-section, any payment made by a purchaser of goods or recipient of services directly to an e-commerce participant for the sale of goods or provision of services or both, facilitated by an e-commerce operator, shall be deemed to be the amount credited or paid by the e-commerce operator to the e-commerce participant and shall be included in the gross amount of such sale or services for the purpose of deduction of income-tax under this sub-section.

  • No deduction under sub-section (1) 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
  • Notwithstanding anything contained in Part B of this Chapter, a transaction in respect of which tax has been deducted by the e-commerce operator under sub-section (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 of this Chapter:

Provided that the provisions of this sub-section 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).

  • If any difficulty arises in giving effect to the provisions of this section, the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the
  • Every guideline issued by the Board under sub-section (4) shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the e-commerce
  • For the purposes of this section, e-commerce operator shall be deemed to be the person responsible for paying to e-commerce
Section 194O   TDS on E-commerce Operator

Explanation.- For the purposes of this section,-

  • "electronic commerce" means the supply of goods or services or both, including digital products, over digital or electronic network;
  • "e-commerce operator" means a person who owns, operates or manages digital or electronic facility or platform for electronic commerce;
  • "e-commerce participant" means a person resident in India selling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce;
  • "services" includes "fees for technical services" and fees for "professional services", as defined in the Explanation to section 194J.]

1) Who is responsible to deduct TDS under section 194O?

Any person, being E-commerce operator facilitating sale of goods or provision of services of an E-commerce Participant through its digital or electronic Facility or platform (by whatever name called).

2) Is there any definition for E-commerce, E-commerce Operator and E-commerce Participant?

Yes, Explanation to 194O have specifically defined below terms

  1. Electronic Commerce means the supply of goods or services or both, including digital products over digital or electronic network
  2. E-commerce operator: means a person who owns, operates or manages digital or electronic facility or platform for electronic commerce and is responsible for paying to e- commerce participant. (It's mandatory to fulfill both precondition which are conjunctive and not dis conjunctive i.e. person must own, operates or manage Digital/Electronic Facility or Platform )
  3. E-commerce participant means a person resident in India selling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce

3) What is the point of deduction of TDS u/s 194O?

Tax should be deducted either at the time of credit of amount of sale or services or both to the account of an e-commerce participant OR at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier.

Payment made by purchaser of goods or services directly to participant shall be deemed to be payment made by E-commerce operator to participant

Finance Act Amendment

  • Definition of E-commerce operator initially had a condition that he shall be responsible for paying to E-commerce participant
  • Anomaly due to the language where payment is directly made by purchaser of goods or services
  • Anomaly now removed by Finance Act by amending definition of E-commerce operator
  • Also sub-section (6) inserted - For the purpose of this section E-commerce operator shall be deemed to be the person responsible for paying to Ecommerce participant

4) At what rate TDS has to be deducted u/s 194-O?

TDS is to be deducted at 1% (0.75% w.e.f. 14.05.2020 to 31.03.2021) on the gross amount of sales or services or both. In Absence of Pan/Aadhaar, TDS is to be deducted @5% (Section 206AA have been amended accordingly). (It is pertinent to note that proposed section uses word "Gross amount of such Sales" which means e- commerce operator will require to deduct TDS on GST portion of sales and as well as on Commission and affiliation portion also which e-commerce operator himself will withheld)

E-commerce participants will continue to make TDS from Ecommerce operator's Income u/s. 194C, 194I, 194H etc. as applicable - Two way TDS

 

5) Under what circumstances TDS u/s 194-O is not deductible?

No TDS is to be deducted, where e-commerce Participant is Individual or HUF and gross amount of such sale or services or both during the previous year does not exceed five lakh rupees AND e-commerce participant furnished Permanent Account Number or Aadhaar number to the e-commerce operator.

6) Whether the TDS is to be deducted for Non-Resident Selling good through Ecommerce Portal u/s 194O?

  • E-commerce Participant is defined a person resident in India selling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce. And thus No TDS is required to be deducted when Participant is Non Resident
  • If E-commerce operator is Non-resident, Equalisation Levy will be applicable
 

7) Whether TDS is to be deducted if amount is directly collected by E-commerce Participant?

For all transaction which has been facilitated by E-commerce participant, TDS has to be deducted by E-commerce operator irrespective of mode of payment to E-commerce participant.

8) Whether Ecommerce Participant can apply for Lower deduction/No Deduction certificate u/s 197?

Yes, Consequent amendment has been made in Section 197. Ecommerce Participant can make application before TDS AO who has a jurisdiction over his/her/its case.


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