Tax deduction at source or Tax collected at source are the most convenient mode of tax collection by the government thus it is a tool to collect tax to minimize the tax evasion by taxing the income at the time when income generated and instead of taxing on a later date.
A large number of changes/amendments through Finance Act 2020, have been brought in relating to the TDS/TCS under various provisions under section 194, 194A, 194C,194J, 194K,194N, 194O etc.
A new section 194O has been inserted which requires to ecommerce operator to deduct TDS on the amount sale or service effected through his platform. E commerce operator like amazon, Uber, flipkart, Myntra,Zomato ,swiggy,makemytrip, & their seller will get affected by this provision. I am making an effort to discuss and explain the impact & implication of the provision in following paragraphs in FAQ format.
1. Date of Applicability: –
It shall be applicable with effect from the 01st October 2020.
2. Scope of the Section:-
This section provides for deduction of tax at source in a case where sale of goods or provision of services or are facilitated by an E-commerce operator through its digital or electronic facility or any platform.
3. Who is liable to deduct tax at source:-
Section provides that in such a case, the E-commerce operator will be liable to deduct tax. As per explanation attached to the section, “e-commerce operator” means a person who owns, operates or manages digital or electronic facility or platform for electronic commerce.
4. What is rate of TDS under this Section :-
E-Commerce Operator shall deduct income-tax at the rate of one per cent of the gross amount of such sales or services or both.
5. When TDS is to be deducted:-
The deduction is required to be made at the time of credit of the amount of sale or services or at the time of payment thereof, whichever is earlier.
As per explanation given to sub section(1)—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.
It is generally happened when goods are sold on “Cash on delivery basis” & goods are delivered by the seller himself. E -operator get his commission part from the seller while settle his accounts.
Now question arise that how e-commerce operator will deduct & deposit tax when he has not actually received the gross amount of sale or service, it will require him to pay tax from his own pocket and collect this amount from the seller later on, and a practical problem will arise to account for such transaction customer to customer basis.
6. What will happen if TDS deducted on sale amount or service but goods returned by customer later on:-
Really it is going create a big problem to the e-commerce operator where TDS shall be deducted and deposited during the particular month but goods was returned by the customer later on. Amount of TDS shall appear in the 26AS of the E commerce participant but he would not be able to match his sale turnover.
7. Is there any threshold limit for transaction :-
As per sub section (2) of the 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 operator.
Therefore it means no TDS shall be deducted in case of an individual or HUF whose gross amount of sale or services is not more than Rs.5 lakhs during the financial year and he has also furnished his PAN or Adhar number to ecommerce operator.
Mention to note that there is no threshold limit for others except individual and HUF.
8. What will happen if PAN or Addhar number not furnished:-
Generally higher rate of tax deduction @ 20% is applicable in a case where the payee does not furnish his PAN to the deductor
However a proviso has been added in the section 206AA so as to provide that for the purpose of this section, the deduction will be made @ 5% (and not 20%) where the payee does not furnish its PAN to the deductor.
9. No deduction under other section if TDS deducted under this section:-
Sub section (3) of the section provides that 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.
For example if a car owner gives his car to uber on contract basis and Uber deducted TDS under this section on gross amount paid to car owner then no other provision of TDS will get attracted even nature of transaction may fall under other provision (like in this case section 194C)
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).
10. I am non resident Indian providing my services through a e-commerce platform based in India whether my consideration would be liable for TDS under this section?
As per sub section (1) of the section, e commerce operator shall deduct tax on the amount paid or payable to the account of an e-commerce participant. As per explanation attached to the section “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, therefore TDS shall NOT be deducted under this section to a payment made or credited to a person who is non resident. It is noteworthy to mention that E commerce operator who is Non resident but making payment or crediting account of resident e commerce participant shall be liable to deduct Tax at source.
11. Few definition given in explanation of the section:-
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;
(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;