Section 194O: Deduction of TDS on Payment of certain sums by e-commerce operator (Amazon/Flipkart) to e-commerce participant
In order to widen the Tax base FM announced that E-commerce operator (Amazon/Flipkart etc) which facilitate sale of good/services through their digital platform required to deduct TDS at 1% on GROSS AMOUNT OF SUCH SALES OR SERVICE OR BOTH if such amount exceeds Rs. 5 Lakhs with the following key points:
- The TDS is to be paid by e-commerce operator for sale of goods or provision of service facilitated by it through its digital or electronic facility or platform;
- E-commerce operator is required to deduct tax at the time of credit of amount of sale or service or both to the account of e-commerce participant or at the time of payment thereof to such participant by any mode, whichever is earlier.
- The tax at one per cent is required to be deducted on the gross amount of such sales or service or both.
- Any payment made by a purchaser of goods or recipient of services directly to an e-commerce participant shall be deemed to be amount credited or paid by the e-commerce operator to the e-commerce participant and shall be included in the gross amount of such sales or services for the purpose of deduction of income-tax.
- The sum credited or paid to an e-commerce participant (being an individual or HUF) by the e-commerce operator shall not be subjected to provision of this section, if the gross amount of sales or services or both of such individual or HUF, through e-commerce operator, during the previous year does not exceed five lakh rupees and such e-commerce participant has furnished his Permanent Account Number (PAN) or Aadhaar number to the e-commerce operator.
- A transaction in respect of which tax has been deducted by the e-commerce operator under this section or which is not liable to deduction under the exemption discussed in the previous bullet, there shall not be further liability on that transaction for TDS under any other provision of Chapter XVII-B of the Act. This is to provide clarity so that same transaction is not subjected to TDS more than once. However, it has been clarified that this exemption will not apply to any amount received or receivable by an e-commerce operator for hosting advertisements or providing any other services which are not in connection with the sale of goods or services referred to in sub-section (1) of the proposed section.
- “e-commerce operator” is defined to mean any person who owns, operates or manages digital or electronic facility or platform for electronic commerce and is a person responsible for paying to e-commerce participant.
- “e-commerce participant” is defined to mean 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.
- “electronic commerce” is defined to mean the supply of goods or services or both, including digital products, over digital or electronic network.
- “services” is defined to include fees for technical services and fees for professional services, as defined in section 194J.
- Consequential amendments are being proposed in section 197 (for lower TDS), in section 204 (to define person responsible for paying any sum) and in section 206AA (to provide for tax deduction at 5 per cent. in non-PAN/ Aadhaar cases).
- 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. Seller is not holding any amount on account of GST, Commission and advertising fees but TDS @ 1% will be deducted on these amounts also in view of Gross Sales. Let me take you through the practicality and difficulty arises due to this:
For an Example: A trader sold goods of Rs.10,00,000/- on Amazon
| Sale Amount | Rs.10,00,000/- |
| GST (18%) | Rs. 1,80,000/- |
| Total Receivable by Seller (A) | Rs.11,80,000/- |
| Amazon Commission (15%) (B) | -Rs.1,77,000/- |
| Various affiliation, shipping and Advertisement Fees (5%) (C) | -Rs.59,000/- |
| Proposed TDS @ 1% of Gross Sales i.e. Rs.11,80,000/- | -Rs.11,800/- |
| Net Receivable in the hands of the Seller (A-B-C-D) | Rs.9,32,200/- |
Above situation will lead to huge working capital crises at the end of Seller who is already suffering from burden of various compliances just because he is selling products online. Also, if his turnover crosses 1 Crore/5 crore then he is also required to deduct TDS of e-commerce operator (Amazon/Flipkart) on these commission and advertisement fees. E-commerce operator generally reimburse this TDS deduction on submission of TDS certificates after the end of Quarter resulting in to blockage of working capital for more then 3 Months.
This amendment will take effect from 1st April, 2020.
[Clause 84]
Extract of Relevant Clauses of Finance Bill, 2020
Clause 84
“Clause 84 of the Bill seeks to insert a new section 194-O in the Income-tax Act relating to payment of certain sums by e-commerce operator to e-commerce participants.
Sub-section (1) of the said section provides that notwithstanding anything to the contrary contained in any of the provisions of Part B ofthis 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. It is further clarified that any payment made by a purchaser of goods or recipient of service directly to an e-commerce participant for sale of goods or provision of services or both, facilitated by an e-commerce operator, shall be deemed to be amount credited or paid by the e-commerce operator to the e-commerce participant and shall be included in the gross amount of such sales or services for the purpose of deduction of income-tax under the said sub-section.
Sub-section (2) of the said section provides that 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 sales or services or both during the previous year does not exceed ten lakh rupees and the e-commerce participant has furnished his Permanent Account Number or Aadhaar number to the e-commerce operator.
Sub-section (3) of the said section provides that 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 is not liable to deduction under sub-section (2), shall not be liable to tax deduction at source under any other provision of Part B of this Chapter. It is further proposed to exclude the application of the said sub-section 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 of goods or services referred to in sub-section (1).
The said section also provides for the definitions of the expressions “electronic commerce”, “e-commerce operator”, “e-commerce participant” and “service”.
This amendment will take effect from 1st April, 2020.”
Extract of Relevant Amendment Proposed by Finance Bill, 2020
84. Insertion of new section 194-O.
After section 194N of the Income-tax Act, the following section shall be inserted, namely:–
Payment of certain sums by e-commerce operator to e-commerce participant.
‘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 subsection.
(2) 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 ten lakh rupees and such e-commerce participant has furnished his Permanent Account Number or Aadhaar number to the e-commerce operator.
(3) 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).
Explanation.––For the purposes of this section,––
(a) “electronic commerce” means the supply of goods or services or both, including digital products, over digital or electronic network;
(b) “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;
(c) “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;
(d) “services” includes ‘fees for technical services’ and fees for ‘professional services’, as defined in the Explanation to section 194J.’.
Source- Finance Bill 2020 / Union Budget 2020-21
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In the example given by you, i think TDS under Income Tax shld be calculated on value excluding GST as a notification to this regard was issued earlier by CBDT