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Are you planning to start selling your products or providing service on E-Commerce platforms or Are you currently selling your products or providing services on e-commerce platforms. If your answer is YES, then this article will be helpful for you in terms of understanding TDS implications on E-Commerce transactions through the newly inserted Section 194-O of Income Tax Act, 1961, Applicable rate and various other provisions.

Let's understand the need for the insertion of the new section. Of late, customers prefer digital platforms for buying or selling of goods and services as it requires less cost for creating the setup and less effort for the search of buyers (from the seller's perspective) and many options are available at one platform and the comparison of products becomes very easy (from Buyer's perspective) which has resulted in an increase in the number of e-Commerce users over a period of time. It is difficult to identify small sellers (e-Commerce participants) who don't file their income tax returns. Thus, the government has enlarged the tax base to bring such e-Commerce participants under the tax base.

This section will be applicable to e-commerce participant being resident in India selling the goods / providing services through an E-commerce platform i.e. for non-residents this section will not be applicable.

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.

E-Commerce operators should deduct TDS @1% 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 participant being a resident individual or HUF: 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.

TDS on E-Commerce Transaction

Penalties under Section 194O

If the Deductor (E-commerce platform) fails to file and pay the TDS, they will bear the following penalties.

  • Interest at the rate of 1% per month or part thereof for non-deduction of TDS
  • Interest at the rate of1.5% per month or part thereof for non-payment of TDS by 7th of every month
  • Rs.200/per day for non-filing of TDS return on a quarterly basis

Let's take an example to understand the above in broader way

XYZ Pvt. Ltd firm selling its product at Amazon India. Amazon India has credited the account of XYZ Pvt Ltd on 31st January, 2021 for the sale of products X made during the month of January 2021 by sum of Rs. 200000 and made payment for sum of Rs. 200000 on 07th Feb 2021. Further Mr. Ram, who purchase product from Amazon India has made the payment of Sum of Rs. 20000 directly to XYZ Pvt Ltd on 15th Jan. 2021. Now the following will be impact of provisions of section 194-O.

  • Amazon India has to be pay the TDS being the e commerce operator for facilitation service of selling of goods electronically.
  • Amazon India has to deduct the TDS on 31st January 2021 being date whichever is earlier of payment or credit the account.
  • TDS will be deducted at the rate of one percent on gross amount of Rs.2,20,000 (Rs.200000+20000) i.e. 2200/-.
  • Further, being Rs.20000 directly paid to seller by buyer is also deemed to be paid by e-commerce operator and the same has also to be included in gross amount along with the amount paid or credited by e-commerce operator for the purpose of deduction of TDS.

E-Commerce Participant can claim the credit of such TDS credited at the time of filing of Return of Income. This section also provides for lower deduction or Non deduction of TDS as specified u/s 197 on submission of Form No. 13 and subject to fulfilment such conditions as specified therein.

We hope this helped you understand how the TDS Section 194-O will impact your e-commerce businesses.

The author can also be reached at tripathi.r.suyash@gmail.com

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Category Income Tax, Other Articles by - Suyash Tripathi