Section 194-O of the Finance Act mandates e-commerce operators deduct 1% income tax on payments to participants for goods/services sold via their platforms. Due to feedback on disparity with offline transactions (0.1% TDS under section 194Q and 0.1% TCS under section 206C(1H)), the Finance Bill 2024 proposes reducing the TDS rate under 194-O to 0.1%. This change aims to create consistency in tax treatment across digital and physical commerce transactions. Effective from October 1, 2024, the amendment seeks to lessen the tax burden on e-commerce participants while aligning with taxation norms for other types of transactions, promoting fairer tax practices in the digital economy.
Budget 2024: Section 194-O – Payment of certain sums by e-commerce operator to e-commerce participant
Section 194-O of the Act provides that notwithstanding anything to the contrary contained in any of the provisions of Chapter XVII-B, 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 1% of the gross amount of such sales or services or both.
2. However, representations were received that offline transactions attract a lower TDS rate of 0.1% (under section 194Q relating to TDS on payment of certain sums for purchase of goods) or tax collection at source (TCS) rate of 0.1% [under section 206C(1H) relating to TCS on receipts from sale of goods]. To bring parity between these provisions, reduction of the TDS rate under section 194-O from 1% to 0.1% is proposed.
3. The amendment will take effect from 1st day of October 2024.
Extract of Clause 61 of Finance Bill 2024
Clause 61 of the Bill seeks to amend section 194-O of the Income-tax Act relating to payment of certain sums by e-commerce operator to e-commerce participant.
Sub-section (1) of the said section provides that 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.
It is proposed to amend the said sub-section so as to reduce the said rate of tax deduction from one per cent. to 0.1 per cent.
This amendment will take effect from 1st October, 2024.
Amendment of section 194-O.
In section 194-O of the Income-tax Act, in sub-section (1), for the words “one per cent.”, the figures and word “0.1 per cent.” shall be substituted with effect from the 1st day of October, 2024.
