Applicability of Section 194-O-TDS on payments made to e-commerce participants by e-commerce operators

-Section 194-O shall be applicable on R & NR (Resident & Non-Resident) E-commerce operators making payment to resident e-commerce participants in relation to sale of goods or services facilitated through its digital or electronic facility or platform.

-Applicable for the transactions from 1st October’2020 onward.

Law: E-commerce operators* should deduct @1% TDS on the gross amount of sales of goods** or services** facilitated by e-commerce operators through digital or electronic platform to the participants. The TDS rate of 1% would apply either at the time of credit to the e-commerce participants or payment by any mode or where purchaser of goods or services making payment directly to e-commerce participants.

Section 194O TDS on payments to e-commerce participants

* E commerce operators like Flipkart, Amazon, Facebook, Myntra etc.

**Goods and services includes digital products (E-book, podcasting, blogs, audio video etc)

Exceptions: TDS under section 194-O not to be deducted in case of

  • An individual or HUF only, where the aggregate gross sale of goods or services or both is not likely to exceed INR 5 Lakhs during the FY; and such person has furnished PAN or an aadhar to the e-commerce operator.
  • Any payment which are covered under this section shall not be liable to TDS under any other provision of the Act.

Points to Remember related to TDS under Section 194O:-    

1. Section 197 now provides that lower withholding certificate (Form -13) may be obtained for Tax deduction under section 194O from the Tax Authorities.

2. Section 206AA now provides that if PAN/Aadhaar is not available, then Tax would be deducted at the rate 5% instead of 1% as prescribed in Section 194O.

Illustration:-

ABC Ltd. (E-Commerce participant) is selling its product through XYZ (E-Commerce Operator). Mr A buys this product online from ABC Ltd. for Rs. 1,18,000/- (Including GST of Rs. 18,000/-) on 1st Oct’2020.

XYZ credits the account of ABC Ltd. on 1 October 2020, but the customer makes the payment directly to ABC Ltd. on 15 October 2020.

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

S. No Date In the books of E-commerce participants (ABC Ltd.) In the books of E-commerce Operators (XYZ)
 

 1.

 

1st Oct’2020

XYZ A/c Dr 1,18,000 Mr. A  A/c        Dr 1,18,000
  To Sales 1,00,000     To ABC Ltd 1,18,000
  To GST 18,000
(Being sale to customer through XYZ) (Being sale to customer)
 2.  

1st Oct’2020

TDS Receivable A/c Dr 10,000 ABC Ltd. A/c  Dr 10,000
   To XYZ A/c 10,000   To TDS Payable A/c 10,000
(Being TDS recoverable from Operator) (Being TDS u/s 194O deducted)
3.  

1st Oct’2020

TDS Payable A/c         Dr 10,000
    To Bank A/c 10,000
  (Being TDS u/s 194O deposited)
­  
 4.  

15th Oct’2020

Bank A/c  Dr 1,18,000
To Mr. A A/c 1,18,000
(Being amount received from Customer)  
   
­

 5.

 

15th Oct’2020

Mr. A A/c Dr 1,18,000 ABC Ltd. A/c                Dr 1,18,000
To XYZ A/c 1,18,000      To Mr. A A/c 1,18,000
(Being adjustment entries passed) (Being adjustment entries passed)
   
 

 6.

­

 

15th Oct’2020

XYZ A/c          Dr 10,000 Bank A/c                       Dr 10,000
To Bank A/c 10,000    To ABC Ltd. 10,000
(Being TDS payment made to operator) (Being TDS amount received from participants)

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