1) Who is responsible to deduct TDS under section 194O of Income Tax Act, 1961?
Any person, being E-commerce operator facilitating sale of goods or provision of services of an E-commerce Participant through its digital or electronic Facility or platform (by whatever name called).
2) Is there any definition for E-commerce, E-commerce Operator and E-commerce Participant?
Yes, Explanation to 194O have specifically defined below terms
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 and is responsible for paying to e-commerce participant.(It’s mandatory to fulfill both precondition which are conjunctive and not dis conjunctive i.e. person must own, operates or manage Digital/Electronic Facility or Platform.)
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.
3) What is the point of deduction of TDS u/s 194O?
Tax should be deducted either 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.
4) At what rate TDS has to be deducted u/s 194-O?
TDS is to be deducted at 1% (0.75% w.e.f. 14.05.2020 to 31.03.2021) on the gross amount of sales or services or both. In Absence of Pan/Aadhaar, TDS is to be deducted @5% (Section 206AA have been amended accordingly). (It is pertinent to note that the section uses word “Gross amount of such Sales” which means e-commerce operator will require to deduct TDS on GST portion of sales and as well as on Commission and affiliation portion also which e-commerce operator himself will withheld)
A transaction in respect of which tax has been deducted by the e-commerce operator (or which is not liable to deduction due to threshold limit), shall not be liable to TDS under any other provisions. However, any amount 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, other provision relating to TDS, if any, is applicable
5) Under what circumstances TDS u/s 194-O is not deductible?
No TDS is to be deducted, where e-commerce Participant is Individual or HUF and gross amount of such sale or services or both during the previous year does not exceed five lakh rupees AND e-commerce participant furnished Permanent Account Number or Aadhaar number to the e-commerce operator.
6) Whether the TDS is to be deducted for Non-Resident Selling good through Ecommerce Portal u/s 194O?
> E-commerce Participant is defined a person resident in Indiaselling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce. And thus No TDS is required to be deducted when Participant is Non Resident.
> If E-commerce operator is Non-resident, Equalisation Levy will be applicable.
7) Whether TDS is to be deducted if amount is directly collected by E-commerce Participant?
For all transaction which has been facilitated by E-commerce participant, TDS has to be deducted by E-commerce operator irrespective of mode of payment to E-commerce participant.
8) Whether Ecommerce Participant can apply for Lower deduction/No Deduction certificate u/s 197?
Yes, Consequent amendment has been made in Section 197. Ecommerce Participant can make application before TDS AO who has a jurisdiction over his/her/its case.
|Example: ABC Ltd., BBC , XYZ and PQR Ltd. (e-commerce participants) supply goods in India through Ebay(a Singapore based website) owned by Ebay Ltd.. Ebay Ltd. wants to know tax to be deducted under section 194-O in the following different cases –|
|CASE 1 – During the financial year 2020-21, ABC Ltd. sells goods of Rs. 44 lakh through Ebay Ltd. Ebay Ltd. transfers Rs. 37.4 lakh (gross sales excluding GST: Rs. 44lakh minus commission: 15 percent) through RTGS on March 31, 2021.|
|CASE 2 – The above payment is made by Ebay Ltd. in 3 installments – Rs. 19.55 lakh on January 1, 2021, Rs. 7.65 lakh on March 1, 2021 and the balance of Rs. 10.2 lakh is transferred to the account of ABC Ltd. (in the books of Ebay Ltd.) on March 31, 2021 (actual payment is made through RTGS on May 18, 2021).|
|CASE 3 – In CASE 2, assume that the e-commerce participant is not ABC Ltd. but Mr.A, an individual.|
|CASE 4 – During the financial year 2020-21, Mr.B (an individual, e-commerce participant) supplies services (aggregate value of which is Rs. 4.5 lakh) through Ebay Ltd. BBC has furnished his PAN to Ebay Ltd.|
|CASE 5 – During the financial year 2020-21, XYZ (an individual, e-commerce participant) supplies goods (aggregate value of which is Rs. 5 lakh) through Ebay Ltd. XYZ has furnished his PAN to Ebay Ltd.|
|CASE 6 – PQR Ltd. is an e-commerce participant. It supplies goods in India through Ebay Ltd. (e., e-commerce operator). During the financial year 2020-21, PQR Ltd. sells goods of Rs. 60 lakh through Ebay Ltd., out of which Rs. 20 lakh is directly received by PQR Ltd. and Rs. 40 lakh is received first by Ebay Ltd. and later on it is remitted to PQR Ltd. on March 31, 2021. Commission of PQR Ltd. in the two cases is 15 percent. PQR Ltd. gets the payment directly from the customers as follows –
-First payment of Rs. 18 lakh – It is received by PQR Ltd. on October 6, 2020. Second payment of Rs. 2 lakh – Received by PQR Ltd. on January 10, 2021.
Solution – Gross payment (before deducting commission) is subject to TDS under section 194-O at the rate of 1% (in non-PAN cases, tax is deductible at the rate of 5%). However, if there is any GST indicated separately in the invoice, it shall be excluded for the purpose of TDS – Circular No. 23/2017 dated July 19, 2017. Tax is deductible under section 194-O in different CASEs as follows –
CASE 1 – Tax is deductible at the rate of 1% of Rs. 44 lakh (excluding GST) on March 31, 2021.
CASE 2 – One has to find out gross payment pertaining to Rs. 19.55 lakh, Rs. 7.65 lakh and Rs. 10.2 lakh (after excluding GST). In this CASE, tax is deductible as follows –
|Date of payment to e-commerce participant and date of TDS||Net amount of payment Rs.||Gross amount (i.e., net amount ÷ 0.85) Rs.||Amount of TDS (Rs.)|
|January 1, 2021||19,55,000||23,00,000||23,000|
|March 1, 2021||7,65,000||9,00,000||9,000|
|March 31, 2021||10,20,000||12,00,000||12,000|
CASE 3 – e-Commerce participant is an individual. However, gross amount of sale through Ebay Ltd. during the year exceeds Rs. 5 lakh. Consequently, tax is deductible by Ebay Ltd. as discussed in CASE 2.
CASE 4 – e-Commerce participant is Mr.B (an individual). Gross amount of sales through e-commerce operator does not exceed Rs. 5 lakh. Consequently, tax is not deductible under section 194-O.
CASE 5 – e-Commerce participant is XYZ (an individual). Gross amount of sales through e-commerce operator does not exceed Rs. 5 lakh. Consequently, tax is not deductible under section 194-O.
CASE 6 – Even if the payment of Rs. 20 lakh is received directly by PQR Ltd. (e-commerce participant), tax will be deducted by Ebay Ltd. on the entire Rs. 60 lakh (after deducting GST). Schedule for tax deduction under section 194-O is as follows:
Payment of Rs. 18 lakh – It is received by PQR Ltd. on October 6, 2020. Date of tax deduction by Ebay Ltd. is October 6, 2020 (amount of TDS is Rs. 18,000, being 1%† of Rs. 18 lakh).
Payment of Rs. 2 lakh – It is received by C Ltd. on January 10, 2021. Date of tax deduction by Ebay Ltd. is January 10, 2021 (amount of TDS is Rs. 2,000, being 1%† of Rs. 2 lakh).
Amount of Rs. 40 lakh – Net amount of payment is Rs. 31 lakh (e., Rs. 40 lakh – commission which is 15% of Rs. 60 lakh). Tax is deductible by Ebay Ltd. on March 31, 2021 is Rs. 40,000 (being 1%† of Rs. 40 lakh).
9) Section 194-O Vs Equalisation Levy
|Particulars||Section 194-O||Equalisation Levy|
|Who is liable to deduct and deposit||E-commerce operator is liable to deduct and deposit with CG||E-commerce operator is liable to deposit the levy with CG|
|Residential Status of Ecommerce Operator||Resident / Non –resident||Non Resident|
|Residential Status of Ecommerce participant||Resident||Non Resident and sale of goods and services should not be effectively connected with the PE in India|
|Customer||Can be resident on non – resident of India||Resident or non-resident as specified|
|Rate||1% of the gross amount of sale / Services / both||2% of consideration received or receivable by an ecommerce operator from supply of goods or services|
TDS under Section 194O- CBDT issues Guidelines
To remove following difficulties for the applicability of section 194-O of the Act, the CBDT has issued circular no.17of 2020 on 29.09.2020
A. Applicability on transactions carried through various Exchanges:
It has been represented that there are practical difficulties in implementing the provisions of Tax Deduction at Source contained in section 194-0 of the Act in case of certain exchanges and clearing corporations. It has been stated that sometime in these transactions there is no one to one contract between the buyers and the sellers.
In order to remove such difficulties, it is provided that the provisions of section 194-0, of the Act shall not be applicable in relation to,-
(i) transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation, including recognized stock exchanges or recognized clearing corporation located in International Financial Service. Centre;
(ii) transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with Regulation 21 of the CERC; and
For this purpose, (i) “recognized clearing corporation” shall have the meaning assigned to it in clause (i) of the Explanation to clause (23EE) of section 10 of the Act;
(ii) “recognized stock exchange” shall have the meaning assigned to it in clause (ii) of the Explanation 1 to sub-section (5) of section 43 of the Act; and
(iii) “International Financial Services Centre” shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005.
B. Applicability on payment gateway:
In e-commerce transactions, the payments are generally facilitated by payment gateways. It is represented that in these transactions, there may be applicability of section 194-0 twice i.e. once on e-main commerce operator who is facilitating sell of goods or provision of services or both and once on payment gateway who also happen to qualify as e-commerce operator for facilitating service. To illustrate a buyer buys goods worth one lakh rupees on e-commerce website “XYZ”. He makes payment of one lakh rupees through digital platform of “ABC”. On these facts liability to deduct tax under section 194-0 may fall on both “XYZ” and “ABC”.
In order to remove this difficulty, it is provided that the payment gateway will not be required to deduct tax under section 194-0 of the Act on a transaction, if the tax has been deducted by the e-commerce operator under section 194-0 of the Act, on the same transaction. Hence, in the above example, if “XYZ” has deducted tax under section 194-0 on one lakh rupees, “ABC” will not be required to deduct tax under section 194-0 of the Act on the same transaction. To facilitate proper implementation, “ABC” may take an undertaking from “XYZ” regarding deduction of tax.
C. Applicability of on insurance agent or insurance aggregator:
It has been represented that insurance agents or insurance aggregators in many cases have no involvement in transactions between insurance company and the buyer for subsequent years. It has been represented that in subsequent years, the liability to deduct tax may arise on the insurance agents or insurance aggregators even if the transactions have been completed directly with the insurance company. This may result into hardship for the insurance agents/aggregators.
In order to remove difficulty it is provided that in years subsequent to the first year, if the insurance agent or insurance aggregator has no involvement in transactions between insurance company and the buyer of insurance policy, he would not be liable to deduct tax under section 194-0 of the Act for those subsequent years. However, the insurance company shall be required to deduct tax on commission payment, if any, made to the insurance agent or insurance aggregator for those subsequent years under the relevant provision of the Act.
Example: Bajaj Allianz sales insurance policy through Policybazzar.com. Suppose in current year policybazzar.com collected insurance premium of 10 Lacs for first year of insurance so in this case policybazzar.com required to deduct TDS of Bajaj Allianz. In subsequent years policy holder directly making payment to Bajaj Allianz then Policybazzar.com not required to deduct TDS however Bajaj Allianz required to deduct TDS u/s 194D on commission paid to Policybazzar.com.
D. Calculation of threshold for the financial year 2020-21.
Since section 194-0 of the Act would come into effect from 1st October, 2020, it was requested to clarify how the various thresholds specified under this section shall be computed and whether the tax is required to be deducted in respect of amounts received before 1st October, 2020.
It hereby clarified that,-
(i) Since the threshold of five lakh rupees for an individual/ Hindu undivided family (being e-commerce participant who has furnished his PAN/Aadhaar) is with respect to the previous year, calculation of amount of sale or services or both for triggering deduction under section 194-0 of the Act shall be counted from 1st April, 2020. Hence, if the gross amount of sale or services or both facilitated during the previous year 2020-21 (including the period up to 30th Sept 2020) in relation to such an individual/ Hindu undivided family exceeds five lakh rupees, the provision of section 194-0 shall apply on any sum credited or paid on or after 1st October, 2020.
Practical Case Studies on Section 194O
Case Study 1 : Payment to Amazon
Mr. A is an e-commerce participant. He registers on Amazon and lists its product. On sale to Customer, amazon undertakes delivery of product. The seller is paid by Amazon after every 14 days after deducting referral fees, shipping fee and closing fees. The invoice of the seller along with GSTIN is sent to buyer.
Sale price: Rs. 2,000
Less: Service charges- 100
Amount remitted to seller: Rs. 1900
> Section 194-O is triggered as Amazon provides ecommerce facility. Amazon will deduct tax on entire gross sale i.e INR 2,000 even though net payment to seller is Rs 1900. The seller need not deduct tax on service fees retained by seller Amazon. There is similar mechanism for payment by Swiggy, Zomato, Flipkart, Book my show, Pharm Easy etc.
Case Study 2: Amazon – payment by e-wallet
Customer buys product on Amazon but makes payment through Paytm. The seller merely registers itself with Paytm to receive payment. Section 194-O applies only when sale of goods or services is facilitated by e-commerce operator. The words ‘facilitated’ are of wide import and accordingly providing wallet facility may be covered by above words. However for section 194-O to apply it is necessary that seller satisfies definition of e-commerce participant. E-commerce participant means a person resident in India selling goods or providing services or both through digital or electronic facility or platform for electronic commerce. In instant case, seller is not selling goods or providing service through electronic commerce. Electronic commerce is defined supply of goods or services or both through digital means.
> Since Paytm merely provides wallet service, payment made by Paytm to seller does not attract section 194-O. Payment by Amazon to Seller attracts TDS.
> It has been clarified by CBDT that no TDS is to be deducted when payment is made through e wallet.
Case Study 3: Payment to Ola
A vehicle owner registers himself on Ola. Ola allots ride based on its software. The pricing is decided by Software. Invoice is issued by Driver for ride and Convenience fees for ride and waiting is charged by Ola. In case of corporate account, entire invoice is issued by Ola. Ola pays rate per km and incentives to Driver. Driver incurs cost of car, petrol, maintenance etc . Some customers pay cash directly to driver.
E-com participant – Vehicle owner as he offers service on electronic platform.
E-com operator – Ola as it provides electronic facility and is responsible for paying Driver.
> Section 194-O is triggered. Ola will be required to deduct TDS on payments made to Vehicle Owner. Pursuant to Explanation to section 194-O, payment in cash made by customer to driver will be deemed to be payment made by Ola to vehicle owner.
Case Study 4: Purchase of IRCTC ticket
IRCTC has sole rights to book railway tickets online. IRCTC charges from the custmers for railway fare and IRTC service charge & convenience charge. IRCTC remits railway fare to Ministry.
Rail fare Rs. 1,500 IRCTC Chrgs Rs.15 Total Rs. 1,515
E-com participant – Ministry of Railway as it sells ticket (goods) through IRCTC
E-com operator – IRCTC as it provides electronic facility and is responsible for paying Railway
> Even though section 194O is triggered, But no TDS is deductible as section 196 makes section 194O non applicable to payment to Government.
Case Study 5: IRCTC ticket booking through Paytm
IRCTC has sole rights to book railway tickets online . Paytm offers railway booking facility .
E-com participant – IRCTC as it provides service of offering tickets of railway .
E-com operator – Paytm as it provides electronic facility and is responsible for paying Railway
> Section 194-O triggered as IRCTC services are provided through Paytm. Paytm will be required to deduct TDS under sec 194-O. IRCTC is not government and hence exemption under section 196 is not available
Amount on which 194-O applies :
> It seems section 194-O applies to entire amount consisting of base fair and service charge as section 194-O uses words ‘gross amount’ as against income used in section 194J leaving no scope of reimbursement. Section 194-O not applicable on payment made by IRCTC to railway.
> It has been clarified by CBDT that no TDS is to be deducted when payment is made through e wallet i.e. the payment gateway, TDS is to be deducted by the e commerce operator only.
Case Study 6: Air Ticket booking through Make My Trip
Mr. Shubham books ticket online. Make My Trip charges user air fare (which includes airline GST) and Make My Trip service charge. The invoice provides details of air fare charged by airline along with airline GST and Make My Trip charges are stated separately. Credit for GST charged by Airline can be claimed by user based on separate invoice issued by Airline which can be obtained from its website.
|Tax and Other Charges:|
|Passenger Service Fee||150|
|Total Fare Rs.||4800|
|Other Charges and fees Rs.||300|
|IGST @ 18% Rs.||54|
E-com participant –Airline Companies as it is selling goods through digital or electronic facility for electronic commerce
E-com operator – MMT as it provides electronic facility and is responsible for paying Airlines
> Section 194-O triggered as MMT provides e-commerce facility. TDS is to be deducted by MMT on Total Fare payable to airline. Airlines need not deduct TDS on service provided by MTM.
Section 194O TDS on E-commerce Operator- Analysis
[Payment of certain sums by e-commerce operator to e-commerce participant.
194-O. (1) 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.
Explanation.—For the purposes of this sub-section, 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.
(2) 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.
(3) 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:
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).
(4) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
(5) Every guideline issued by the Board under sub-section (4) shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the e-commerce operator.
(6) For the purposes of this section, e-commerce operator shall be deemed to be the person responsible for paying to e-commerce participant.
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;
(d) “services” includes “fees for technical services” and fees for “professional services”, as defined in the Explanation to section 194J.]
(Republished with amendments)