Are you deducting TDS of Online Shopping Websites?

It’s the era of e-commerce. Websites like Amazon, Flipkart, and Paytm are much more than just online shopping destinations. They are now powerful advertising platforms and important stops in the consumer journey. Many MSME vendors have registered themselves on such portals and successfully running their businesses.

Every vendor has to pay charges such as commission, courier fees, logistics charges etc to such e-commerce portal. However, the education about TDS deduction in the marketplace has been quite low with many of the suppliers being uninformed about this provision. Engaging a top legal firm can create awareness about this but a common seller does not have this privilege. This article aims to ease your TDS process with the main online sites like Flipkart, Snapdeal, Amazon etc. 

Let’s understand this with the help of one example. M/s. ABC enterprises sells goods of Rs.10 Lakh to various customers through Mr. Ram (Commission Agent), then at the time of payment of commission of Rs.1 Lakh to Mr.Ram by M/s. ABC enterprises, TDS @5% i.e. Rs.5,000 would be deducted & deposited to Government u/s.194H. Thus, Mr. Ram would get commission of Rs.95,000 in the bank account , i.e. net of TDS of Rs.5,000. Further M/s.ABC enterprises would also deduct TDS while making payment to transporters for logistics.

However, in case of e-commerce selling, when M/s. ABC enterprises sells goods to various customers across India through online Portal (e.g. Amazon), then Payment of commission/logistics fees/payment collection fees don’t flow through the banking channel from ABC enterprises to Amazon. But, Amazon takes payment from customers for value of Goods Sold i.e. Rs.10 Lakh, then keeps the share of commission/logistics fees/any other charges etc (say Rs.1 lakh commission & Rs.50,000 logistics Charges), and thus Rs.8.50 lakhs is remitted from Amazon to ABC enterprises through Banking Channel.

M/s. ABC Enterprises was supposed to deduct TDS at the time of payment of commission and logistics charges to Amazon. However, payment was not made directly. But the same was settled through netting off i.e. Amazon kept its share while remitting sales proceeds from Customer to vendor M/s.ABC enterprises. Thus, now ABC enterprises would get statement & invoice from Amazon, calculate TDS as per applicable rates of Income Tax Act and deposit the same to the govt. Then claim re-imbursement of the same is done from e-commerce portal, because e-commerce has retained its entire commission & logistics fees (without considering effect of TDS).

In nutshell, M/s. ABC enterprises would deposit TDS from out of pocket & claim re-imbursement of the same from Amazon i.e. e-commerce portal.  Let’s discuss the same in detail.

Rates for TDS Deductions

Every vendor receives periodic Fees Invoice & Account statement from such e-commerce portal regarding Fees & Other charges kept by them out of sales proceeds. Various nomenclatures are being used by different portal for commission, logistics & advertisement charges etc. Following Table would help you to understand the TDS rates applicable on them.

Deductor: Vendor, who sells his/her products/services

Deductee: E-Commerce Operator/online shopping website, who maintains website for listing of such products/services e.g. Amazon, Flipkart, Snapdeal, Paytm, Myntra, Shopclues, Alibaba, Udaan etc.

Note 1: In case e-commerce operator/website has obtained Lower Deduction Certificate (LDC) u/s.197 of Income Tax Act,1961 , then applicable rate for TDS deduction of that particular Assessment year would be the rate as specified in Lower Deduction Certificate.

Note 2: Lower Deduction Certificate u/s.197 of Income Tax Act, 1961 is applicable for Particular Assessment Year & for that Particular Deductee – Deductor combination.

Note 3: Validity of Lower Deduction Certificate u/s.197 of Income Tax Act, 1961, can be verified from TRACES Portal.

Note 4: Vendor/Seller of Product/Services has to make payment of TDS on monthly basis to government and after filing of Quarterly TDS return (Form 26Q), reimbursement of TDS deposited has to be claimed from e-commerce operator by submitting TDS Certificate (Form 16A). They generally prefer TDS Certificate duly signed by Digital Signature Certificate (DSC) for prompt processing of TDS Refund Claim.

Note 5: Request/Application for reimbursement of TDS deposited has to be made through writing email/login through designated ID of the vendor’s provided on e-commerce portal. Such reimbursement is done through payment to the bank account or through adjustment from next invoice.

Note 6: TDS is deposited on the basis of Invoices of Fees & credit note of Fees generated by e-Commerce operator on the portal/ website, which are generally generated on the month end date/first week of the next month.

Note 7: In case of Credit Notes of Fees due to Sales Return/any other reason, TDS has to be deducted Net of Credit Notes from the invoices received. In case Credit Notes remain unadjusted in current month, then the same need to be deducted while next month TDS deduction. (upto same financial year only)

Note 8: In case amount of commission/logistics/other fees as depicted in the above table is below amount specified under section 194C/194H/194J, then TDS need not be deducted. Further limit (e.g.15,000 u/s. 194H) is section wise & not Fees head wise (i.e. combined limit by aggregating/adding up Collection Fees, Listing Fee, Commission Fees etc would be seen u/s. 194H).

Note 9: Vendors whose constitution is Firm/LLP/Company, they have mandatorily to deduct TDS. Individual & HUF firms to deduct TDS only if they get their accounts audited u/s.44AB of Income Tax Act.{ clause (a) & clause (b) of section 44AB }

Note 10: In case of Non Resident e-Commerce operator in India, TDS u/s.195 would be deducted, as section 194C/H/I/J are applicable for resident deductees only.

Note 11: Various nomenclatures are being used by different e-commerce websites to collect these Fees & Charges in the form of commission, advertisement & logistics etc. Bifurcating them to section 194C/194H/194J is really difficult task. However one may take help of SAC/HSN (as per GST Law) used in their Fees invoices for easy understanding.

Note 12: Proposed TDS u/s.194-O (w.e.f. 01/10/2020) is applicable to levy a TDS of 1% on e-commerce transactions requiring an ecommerce operator to deduct tax at the time of credit of sale/service amount to the account of e-commerce participant or at the time of payment thereof by any mode, whichever is earlier. Hence this section is independent of existing TDS sections. Further TDS u/s.194-O is to be deducted by e-commerce operator vis a vis. TDS u/s.194C/J/H/I as per details above is to be deducted by vendors of e-commerce operators. 

Please refer all the relevant section, rules, notifications and amendments as applicable. The Author is not responsible for any losses incurred. Content is merely for sharing knowledge & Educational Purpose only. Author don’t promote any of such e-commerce operators & names of e-commerce websites used in this article are for learning purpose only, without accepting any type of liability. Author can be reached at casagargambhir@gmail.com for any queries, issues & recommendations relating to the article.