Introduction
With the rapid rise of digital marketplaces, tax compliance for e-commerce transactions has become a key focus for the Indian government. The introduction of Section 194O in the Income Tax Act, 1961 for e-commerce transactions, has created certain overlaps with Section 194H, which deals with TDS on commission income. This article explores the interplay between these two sections and clarifies when and whether TDS should be deducted.
Page Contents
Understanding Section 194O – TDS on E-Commerce transactions
Applicability:
- Section 194O applies to e-commerce operators (digital platforms facilitating the sale of goods or services).
- It mandates that e-commerce operators deduct 0.1% TDS on the gross amount payable to e-commerce participants (sellers/service providers) at the time of credit or payment, whichever is earlier.
- If the seller is an individual or HUF, no TDS is required if their total transactions on the platform do not exceed Rs. 5 lakh per financial year, provided PAN/Aadhaar is furnished.
Example: If a movie theater sells Rs. 10 lakhs worth of tickets through an e-commerce platform like BookMyShow, the platform will deduct Rs. 1,000 (0.1% TDS under 194O) before paying the balance amount to the theater.
Understanding Section 194H – TDS on Commission Income
Applicability:
- Section 194H applies to commission or brokerage payments, requiring the payer to deduct TDS at 2% before making the payment to the recipient.
- It applies when a business pays a commission or brokerage to an agent.
- This section is not applicable in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed fifteen thousand rupees.
Example: ABC Ltd. pays a commission of Rs. 20,000 to its sales agent for securing orders. Since this is a commission payment, ABC Ltd. must deduct 2% TDS under Section 194H before making the payment. TDS to be deducted Rs. 400 (Rs 20,000 × 2%).
Question: Is TDS u/s 194H applicable on this commission?
A key concern arises when e-commerce operators charge commission fees in addition to facilitating transactions. These commission fees are typically deducted before disbursing payments to the e-commerce participants. Furthermore, TDS under Section 194O is deducted by the e-commerce operator on the entire transaction value.
As per Section 194O (3) of the Act:
“Notwithstanding anything contained in Part B of this Chapter, 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.”
This implies that if an e-commerce operator has already deducted TDS at 0.1% under Section 194O on the total transaction amount, the e-commerce participant is not required to deduct an additional 2% TDS under Section 194H on the commission invoice raised by the platform.
Furthermore, the Central Board of Direct Taxes (CBDT), under the Ministry of Finance, has provided clarifications regarding the applicability of Section 194O through Circular No. 20 of 2023 dated 28th December 2023. The circular states that convenience fees or commissions charged by an e-commerce operator shall be considered as part of the “gross amount” for the purpose of TDS deduction under Section 194O of the Act.
Therefore, it can be concluded that TDS under Section 194H shall not be applicable in cases where TDS has already been deducted under Section 194O.
Key Takeaways
- TDS under 194O applies to the gross transaction amount collected by an e-commerce operator.
- If 194O TDS is deducted, no further TDS should be deducted under 194H on commission invoices issued by the platform.
- Businesses should carefully check whether an e-commerce operator has deducted TDS under 194O before applying TDS under 194H on commission payments.
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