TDS on E Commerce Transactions under Section 194O with effect from 01st April 2020
Are you planning to start selling your products or providing service on e-commerce platforms or Are you E commerce participant i.e. currently selling your products or providing services on e-commerce platforms?
If your answer is yes, then this article will be helpful for you in terms of newly inserted section 194-O which specifies the applicability of TDS on E commerce transactions, which will be applicable from 01st Apr 2020.
Before we move further towards the analysis of Section 194-O lets understand the need of insertion of new section. Now a day’s many companies are using e commerce to reach out to customers worldwide and increase their sales. As we all aware about the fact that now a days everyone prefer to purchase / sell the products over the digital platform because it require less cost in terms of setup or advertisement or less efforts in search of a buyer (from seller point of view) or many options are available at one platform or comparison of product is easy or we get the accessibility of product/ service on the mode of any time / from anywhere basis (from buyer point of view). So the number of ever increased user is increasing day by day. Now there was a problem with revenue that they were not able to identify the small seller of goods/services who were not filing their return of Income and transacting over the e commerce platforms. So revenue came up with the new idea and imposed the liability of Tax deduction of source on e-commerce operator i.e. on the mediator between the buyer and seller of goods or services ex. Amazon, myntra etc.
Now let’s move further towards analysis of newly inserted section 194-O step by step with the help of above mentioned points.
1. Scope of TDS on E Commerce Transactions under Section 194O
Motive behind insertion of new section is to bring the e-commerce participant within the tax net i.e. there will be transparency on the income earned by seller of goods/provider of service through digital platforms. Provision of section states as under:
- The TDS is to be paid by e-commerce operator for facilitation service of selling of goods/provision of service provided by it through its digital or electronic facility or platform. In other words, burden of payment of TDS is kept on mediator between buyer and seller.
- E-commerce operator is required to deduct TDS at the time of credit or payment, whichever is earlier. Credit means credit to the account of e-commerce participant and payment means payment through any mode.
- Further this section provides that if a buyer of goods or service has made payment directly to e-commerce participant it shall be deemed that payment has been made by e-commerce operator or account has been credited by e-commerce operator and same shall be added in gross amount for the purpose of deduction of tax.
Let’s take an example to understand the above in broader way.
ABC, a partnership firm selling its product X at Amazon India. Amazon India has credited the account of ABC on 31st December 2020 for the sale of products X made during the month of December 2020 by sum of Rs. 5,70,300 and made payment for sum of Rs. 5,70,300 on 03rd Jan 2021. Further Mr. Ram, who purchase product X from Amazon India has made the payment of Sum of Rs. 25,200 directly to ABC on 15th Dec. 2020. Now the following will be impact of provisions of section 194-O.
- Amazon India has to be pay the TDS being the e commerce operator for facilitation service of selling of goods electronically.
- Amazon India has to deduct the TDS on 31st December 2020 being date whichever is earlier of payment or credit the account.
- TDS will be deducted on gross amount of Rs. 5,95,500 (Rs.5,70,300+ Rs.25,200) being the amount directly paid to seller by buyer is also deemed to be paid by e-commerce operator and the same has also to be included in gross amount along with the amount paid or credited by e-commerce operator for the purpose of deduction of TDS.
2. Applicability of TDS on E Commerce Transactions under Section 194O
The provision of this section will be applicable from 01st Apr. 2020 on every person transacting over the e-commerce platform. Provision in respect of applicability states as under:
- This section will be applicable on e-commerce participant being resident in India selling the goods / providing services through E-commerce platform i.e. for non-residents this section will not applicable.
- Service is defined to include fee for technical services or fees for professional services.
- E-commerce operator is not required to deduct TDS If, the amount paid or credited to Individuals or HUF (having PAN or Aadhaar, furnishes to e-commerce operator) during the previous year does not exceed Rs. 5,00,000 i.e. rational behind non deduction of TDS for sum paid to Individual or HUF up to Rs. 5,00,000 is that any how income tax up to Rs. 5 lakh in NIL due to rebate provided u/s 87A.
- If the tax has been deducted or not deducted due to exemption provided for Individual/HUF then the same will not be covered under the ambit of TDS under any other provisions of the ACT specified in chapter XVII-B of the Act.
- This section further provides that exemption stated above will be applicable for any amount received or receivable by e-commerce operator for hosting advertisement or providing any other services which are not in line or in connection with selling of goods or provision of service related to e-commerce participant.
- This section also provides for lower deduction or Non deduction of TDS as specified u/s 197 on submission of Form no. 13 and subject to fulfilment such conditions as specified therein.
3. Rate of TDS under Section 194O on E Commerce Transactions
TDS under this section will be deducted by E commerce operator at the rate of 1% or at the rate of 5% (for non-pan/aadhaar cases). In other words TDS will be deducted at the rate of 1% in every case except those cases where e-commerce participant does not have pan or aadhaar, in those cases rate of 5% will be applicable.
4. Miscellaneous Provisions of Section 194O-TDS on E Commerce Transactions
Rest all other provisions of the chapter TDS of the act will be applicable i.e. provision related to payment of TDS, filling of TDS return, provision as applicable for non-filing of return, non-deduction or lower deduction, non-payment post deduction will be remain as applicable as mentioned in the chapter of TDS of the Act. For more clarity some words which were used in this section under this article has been explained as under:
- E-commerce operator means any person (note that there is no distinction has been made for resident or non-resident) who operates or manages digital or electronic facility or platform for electronic commerce and also responsible for paying the amount to e-commerce participant. Eg. Amazon, Flipkart, Myntra, Facebook etc.
- E-commerce participant means any person resident in India selling goods including digital product ( Electronic books, podcast, blogs, video etc.) or providing service or both through digital facility or platform for electronic commerce.
- E-commerce means the supply of goods or services or both including digital products over the digital or electronic network. In simple words, the business of buying or selling of goods/services over the internet.
- Resident means as defined under section 6 of the income tax act.
- Relaxation is available only for resident Individual and HUF up to a specified amount i.e. apart from that TDS will be deducted in case of every resident person by e-commerce operator irrespective of transaction amount. So, this is going to be very tough for E commerce operator for deduction of TDS in case of individual or HUF because a person being individual can sell his goods on multiple platform and can ask for no deduction of TDS till the time total amount exceed the threshold limit of Rs. 5 lakh because burden for deduction of TDS is on e-commerce operator.
- So, for the ease in respect of avoidance of non-compliance they can go for the options like, in coming days they must ask for declaration from individual regarding the selling of goods on more than one electronic platform or regarding that the once amount exceeds the specified limit then individual must inform him about that or continue to deducted the TDS from very start.
Post reading the above we can analyse that revenue to going to cover up each and every area from where a person can do the business and is on the way that nothing will be left out from the ambit of the revenue from the tax collection point of view.