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:
| 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) | |||
Author Bio
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>
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?