Section 194O has been introduced in Union Budget 2020 to widen the tax net by bringing the E-commerce participant within the tax net. According to Section 194O, an E-commerce operator is required to deduct tax for any Sale of Goods or providing services or both through an E-commerce participant. This Section will be applicable from 01 October, 2020.

Scope of Section 194O is discussed below:

TDS on Payments to E-commerce

Deductor

{Sub Section (1

)}

E-commerce Operator will be liable to deduct tax.

An E-commerce operator means “a person who owns, operates, or manages digital or electronic facility or platform for electronic commerce.” He is responsible for making payments to the E-commerce participant on such sales.

Deductee

{Sub Section (1)}

E-commerce Participant

E-Commerce participant means a person resident in India selling goods or providing services or both through an electronic facility provided by E-commerce Operator.

This Section won’t be applicable for Non-residents.

Event

{Sub Section (1)}

This Section will be attracted when there is Sale of Goods or Providing of Services or Both by the E-commerce participant through the electronic facility owned or managed by the E-commerce Operator.
Time of Deduction

{Sub Section (1)}

Earlier of the Following:

a) At the time of credit

Or

b)At the time of making the payment

Note: For Clarification See below the example.

Rate of Tax

{Sub Section (1)}

TDS shall be deducted on the Gross amount of Sales or Services or both

i) TDS will be @ 1% (if PAN/Aadhar furnishes) (Reduced to 0.75% till 31.03.2021)

ii) TDS will be @ 5% (if No PAN/Aadhar furnishes) (No reduction) 

Gross Amount shall not include GST if GST is separately mention in the invoice.

Exception

{Sub Section (2)}

This Section won’t be applicable in the following cases

a)  Non-resident E-commerce participants

b)  E-commerce operator does not need to deduct TDS if the amount paid or credited to a resident Individual / HUF does not exceed Rs 5 Lacs during a financial year and such E-commerce participant furnishes PAN/Aadhar.

Overriding Effect

(Subsection-(3))

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:

Now lets understand the whole provision with the following example:

M/s ABC (E-Commerce participant) is selling its product through Amazon (E-Commerce Operator). Mr X buys this product online from M/s ABC for Rs. 2,36,000/- (Including GST of Rs. 36,000/-) on 1st Oct’2020.

Amazon credits the account of M/s ABC on 1 October 2020, but the customer makes the payment directly to M/s ABC on 10 October 2020.

1. Here, Amazon is required to deduct TDS @1% on Rs 2,00,000/- (Excluding GST)

2. at the time of credit to the party; or making payment, whichever is earlier.

In this case, TDS should be deducted on 1 October 2020.

Accounting Entries

c Date In the books of E-commerce participants (M/s ABC)
1. 1st Oct’2020 Amazon Dr 2,36,000
  To Sales 2,00,000
  To GST 36,000
(Being sale to customer through Amazon)
2. 1st Oct’2020 TDS Receivable A/c Dr 2,000
   To Amazon 2,000
(Being TDS receivable from Amazon)
 3. 10th Oct’2020 Bank A/c  Dr 2,36,000
To Mr. A A/c 2,36,000
(Being amount received from Customer)
4. 10th Oct’2020 Mr. A A/c Dr 2,36,000
To Amazon 2,36,000
(Being adjustment entries passed)
5.

­

10th Oct’2020 Amazon          Dr 2,000
To Bank A/c 2,000
(Being TDS payment made to Amazon)

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2 Comments

  1. rahul says:

    Hi,
    I’m rahul Tyagi. I want to know how the liability under 194O in the book of E commerce participant. for Example: there is Discom MSTC e auction site and customer. Scrap directly sale to customer and payment received from customer. on the payment payment received from customer MSTC applicable 194O and deducted .75% TDS.
    Could you tell me the accounting entry>

  2. Amit says:

    Is Sec 194 O applicable on e-commerce companies providing services to Government departments? Do they need to deduct TDS from the sale proceeds given to Govt departments?

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