CBDT Circular 20/2023: Guidelines on TDS for e-commerce operators

Recently, through the CBDT Circular  No. 20/2023, dated 28-12-2023, several guidelines have been issued for removal of difficulties and attempt has been made to provide clarity on various issues pertaining to applicability of section 194-O of the Act in a multiple e-commerce operator model framework, such as Open Network for Digital Commerce (ONDC).

Before proceeding further, it is imperative to know the relevant provisions of section 194-O of the Income Tax Act, 1961 (‘’the Act”), which are as follows;

(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.

Section 194-O of the Income Tax Act, 1961 (‘’the Act’’), provides that an e-commerce operator (ECO) shall deduct income-tax at the rate of one percent of the gross amount of sale of goods or provision of service, or both,  facilitated through its digital platform.

As per section 194-O of the Act, deduction of TDS @ 1% should occur at the time of crediting the amount to the e-commerce participant’s account or at the time of payment, whichever is earlier.

Issues addressed by Circular are as follows;

1. Tax Deduction in multiple ECO transactions;

If multiple ECOs are involved in a single transaction, the responsibility for section 194-O compliance depends on whether the seller-side ECO is the actual seller or not.

Situation-1: If the seller side ECO is not the actual seller, the compliance u/s 194-O of the Act, is to be done by the seller side ECO, who finally  makes the payment to the seller for goods or services sold or provided,

Situation-2: If the seller side ECO is the actual seller, the compliance u/s 194-O of the Act, is to be done by the ECO which finally makes the payment to the seller.

2. Inclusion of several fees in gross amount;  a) Convenience fees, commissions, logistic charges, and delivery fees should be included in the “gross amount” for TDS purposes; b) Payments made to platform providers for transaction facilitation are included if linked to the transaction.

3. Exclusion of GST and other taxes;

When tax is deducted at the time of credit of amount in the account of seller and the component of GST and other taxes in indicated separately in  the invoice, then tax shall be deducted on the amount credited without including GST and other taxes.

However, if the tax is deducted on payment basis, then tax would be deducted on the whole amount, since it would not be possible to identify GST  and other taxes component of the amount to be invoiced in future.

4. Purchase returns and adjustments;

If tax has already been deducted before the purchase return, adjustments can be made against the next transaction with the same seller in the same financial year.

However, no adjustment is required if the purchase return is replaced by the goods.

5. Treatment of discounts;

1. Seller discount: In case, the discount is given by the seller itself, the seller would reduce the price of the products sold or services provided;

2. Buyer ECO/Seller ECO: In case of discounts offered by ECOs, TDS would be deducted on the gross amount.

Conclusion: The CBDT Circular 20/2023 provides comprehensive guidance on TDS in the e-commerce sector. By addressing issues related to multiple ECO transactions, fees inclusion, GST treatment, purchase returns, and discount deductions, the circular aims to enhance clarity and compliance in the evolving landscape of digital commerce. E-commerce operators and stakeholders should stay informed and adhere to these guidelines for seamless financial operations.