Section 194O TDS on payment by e-commerce operators & aggregators

OVERVIEW:

The last decade had witnessed one of the most outrageous growth in the technology enabled or may be the technology dependent businesses and professions across the globe. India, being a part of this race has witnessed technology explosion alongwith the population explosion which has already been discussed in great depth by a number of learned experts.

Technology explosion or growth of technology has been driven primarily by the development of e-commerce functionalities. E-commerce in simple terms means ‘functioning or performance of all the business activities starting from pitching the customer to the provision of after sale service through the means of a network called internet’.

E-Commerce, in layman terms has often been restricted to the business performed by Amazon, Flipkart or Snapdeal. However, e-Commerce also covers within its ambit the businesses of Ola, Uber, Zomato, Swiggy, Book My Show, Make my Trip, etc.

As per Nasscom about 235 Million entities are involved in such online transactions directly or indirectly, which is very large and requires tax regulation. Since, the volume of transactions is also quite huge, it becomes very necessary to bring such transactions under TDS net, not only from revenue generation point but also to track transactions and to get new taxpayers.

TAXATION:

In this backdrop, the Central Government in order to widen and deepen the tax net by bringing participants of e-commerce within the ambit of tax, through the Union Budget 2020-21 has proposed to insert a new section ‘194O – Payment of certain sums by e-commerce operator to e-commerce participant’ with effect from Assessment Year beginning from April 1, 2020.

Section 194-O: 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.

… … …”

Before, getting into the nitigirites and decoding the provisions of the newly inserted section it is pertinent to understand some specific terms:

1. e-commerce: It means supply of goods or services or both, including digital products, over digital or electronic network.

2. e-commerce operator: It 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.

3. e-commerce platform: It 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.

The above provision states that the tax should be withheld by the e-commerce operator at the time of credit or payment (whichever is earlier) to the e-commerce participant at the rate of 1% of the gross amount of such sales and/or receipts. The withholding is required when the 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).

The section aims to cover within its ambit all the transactions which are facilitated through the e-commerce operator irrespective of the fact that payment is made by the ultimate customer to the e-commerce operator or to the e-commerce participant. Thus, TDS is required to be deposited on all the transactions for sale of goods / rendering of services which are routed through the e-commerce platform.

A threshold of INR 5 Lakhs has been prescribed in cases of e-commerce participant being an individual or an HUF who furnishes PAN / Aadhar Number. In case, PAN or Aadhar Number is not furnished by any e-commerce participant TDS shall be deducted @ 5% of the gross amount of such sales or services or both.

The proposal also provides that the tax 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 of goods or rendition of services since, equalization levy has been charged on the transactions related to online advertisements. Further, no TDS shall be deductible on such transactions under any of the other provisions of the Act.

OBSERVATIONS & COMMENTS:

1. The Government has also kept in mind the cashflow issues faced by the small businessmen and therefore, the individuals and HUF having gross sale/receipts through an e-commerce platform below INR 5 lakhs have been carved out from the ambit of TDS under the newly inserted section.

2. Levy of TDS @ 1% on the transactions of sale of goods and/or rendering of services would enable the Government to collect information relating to the transactions via e-commerce thereby, budding opportunities for increase in revenue and expanding the taxpayer base.

3. The e-commerce operator in the present scenario is an intermediary between the buyer and the seller. The customer makes the payment to the e-commerce operator through digital means or cash on delivery and the e-commerce operator in turn, makes the payment to the e-commerce participant. Therefore, the liability to deduct TDS on payments made to e-commerce participant has been levied on the e-commerce operator since, it would be practically impossible for the ultimate customers to comply with the withholding compliances. Further, deduction of tax at source by the e-commerce operators is likely to help the Government in collecting revenue easily.