- CA VIKAS SINGH
- | Income Tax - Articles
- 21 Jun 2020
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TDS on E Commerce Transactions under Section 194O with effect from 01st October 2020
Are you planning to start selling your products or providing service on e-commerce platforms or Are you E commerce participant i.e. currently selling your products or providing services on e-commerce platforms?
If your answer is yes, then this article will be helpful for you in terms of newly inserted section 194-O which specifies the applicability of TDS on E commerce transactions, which will be applicable from 01st Apr 2020.
Before we move further towards the analysis of Section 194-O lets understand the need of insertion of new section. Now a day’s many companies are using e commerce to reach out to customers worldwide and increase their sales. As we all aware about the fact that now a days everyone prefer to purchase / sell the products over the digital platform because it require less cost in terms of setup or advertisement or less efforts in search of a buyer (from seller point of view) or many options are available at one platform or comparison of product is easy or we get the accessibility of product/ service on the mode of any time / from anywhere basis (from buyer point of view). So the number of ever increased user is increasing day by day. Now there was a problem with revenue that they were not able to identify the small seller of goods/services who were not filing their return of Income and transacting over the e commerce platforms. So revenue came up with the new idea and imposed the liability of Tax deduction of source on e-commerce operator i.e. on the mediator between the buyer and seller of goods or services ex. Amazon, myntra etc.
Now let’s move further towards analysis of newly inserted section 194-O step by step with the help of above mentioned points.
Page Contents
- 1. Scope of TDS on E Commerce Transactions under Section 194O
- 2. Applicability of TDS on E Commerce Transactions under Section 194O
- 3. Rate of TDS under Section 194O on E Commerce Transactions
- 4. Miscellaneous Provisions of Section 194O-TDS on E Commerce Transactions
- 5. Extract of Section 194-0 of Income Tax Act, 1961
1. Scope of TDS on E Commerce Transactions under Section 194O
- Motive behind insertion of new section is to bring the e-commerce participant within the tax ambit i.e. there will be transparency on the income earned by seller of goods/provider of service through digital platforms. Provision of section states as under:
- The TDS is to be paid by e-commerce operator for facilitation service of selling of goods/provision of service provided by it through its digital or electronic facility or platform. In other words, burden of payment of TDS is kept on mediator between buyer and seller.
- E-commerce operator is required to deduct TDS at the time of credit or payment, whichever is earlier. Credit means credit to the account of e-commerce participant and payment means payment through any mode.
- Further this section provides that if a buyer of goods or service has made payment directly to e-commerce participant it shall be deemed that payment has been made by e-commerce operator or account has been credited by e-commerce operatorand same shall be added in gross amount for the purpose of deduction of tax.
Let’s take an example to understand the above in broader way.
ABC, a partnership firm selling its product X at Amazon India. Amazon India has credited the account of ABC on 31st December 2020 for the sale of products X made during the month of December 2020 by sum of Rs. 5,70,300 and made payment for sum of Rs. 5,70,300 on 03rd Jan 2021. Further Mr. Ram, who purchase product X from Amazon India has made the payment of Sum of Rs. 25,200 directly to ABC on 15th Dec. 2020. Now the following will be impact of provisions of section 194-O.
- Amazon India has to be pay the TDS being the e commerce operator for facilitation service of selling of goods electronically.
- Amazon India has to deduct the TDS on 31stDecember 2020 being date whichever is earlier of payment or credit the account.
- TDS will be deducted at the rate of one percent on gross amount of Rs. 5,95,500 (Rs.5,70,300+ Rs.25,200) i.e. 5,955/-
- Further, being Rs. 25,200 directly paid to seller by buyer is also deemed to be paid by e-commerce operator and the same has also to be included in gross amount along with the amount paid or credited by e-commerce operator for the purpose of deduction of TDS.
2. Applicability of TDS on E Commerce Transactions under Section 194O
The provision of this section will be applicable from 01st October 2020 on every person transacting over the e-commerce platform. Provision in respect of applicability states as under:
- This section will be applicable on e-commerce participant being resident in India selling the goods / providing services through E-commerce platform i.e. for non-residents this section will not applicable.
- Service is defined to include fee for technical services or fees for professional services.
- E-commerce operator is not required to deduct TDS If, the amount paid or credited to Individuals or HUF (having PAN or Aadhaar, furnishes to e-commerce operator) during the previous year does not exceed Rs. 5,00,000 i.e. rational behind non deduction of TDS for sum paid to Individual or HUF up to Rs. 5,00,000 is that any how income tax up to Rs. 5 lakh in NIL .
- A transaction in respect of which tax has been deducted by the e-commerce operator under this section or which is not liable to deduction under the exemption discussed in the previous bullet, there shall not be further liability on that transaction for TDS under any other provision of Chapter XVII-B of the Act. This is to provide clarity so that same transaction is not subjected to TDS more than once. However, it has been clarified that this exemption will not apply to 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 of goods or services referred to in sub-section (1) of the proposed section.
- This section also provides for lower deduction or Non deduction of TDS as specified u/s 197 on submission of Form No. 13 and subject to fulfilment such conditions as specified therein.
3. Rate of TDS under Section 194O on E Commerce Transactions
| Section
Nature of Payment |
Thres-hold Limit (Rs) | TDS Rate (%)
Upto 13th May, 2020 |
TDS Rate (%)
From 14th May, 2020 |
||
| Resident | Non – Resident [*]
|
Resident | Non – Resident [*] | ||
| Section 194O: Applicable for E-Commerce operator for sale of goods or provision of service facilitated by it through its digital or electronic facility or platform.
(In case the E-commerce participant does not furnish PAN or Aadhar Number to the e-commerce operator, TDS shall be deducted at the rate of 5% under section 206AA of the Act) (This Section is inserted by Finance Act, 2020 which is applicable from 01/10/2020) |
– | 1
(w.e.f. 01st October, 2020) |
– | 0.75
(w.e.f. 01st October, 2020) |
– |
* The rate of TDS are after considering cess @4% and shall be increased by applicable surcharge.
4. Miscellaneous Provisions of Section 194O-TDS on E Commerce Transactions
- Rest all other provisions of the chapter TDS of the act will be applicable i.e. provision related to payment of TDS, filling of TDS return, provision as applicable for non-filing of return, non-deduction or lower deduction, non-payment post deduction will be remain as applicable as mentioned in the chapter of TDS of the Act. For more clarity some words which were used in this section under this article has been explained as under:
- E-commerce operator means any person (note that there is no distinction has been made for resident or non-resident) who operates or manages digital or electronic facility or platform for electronic commerce and also responsible for paying the amount to e-commerce participant. Eg. Amazon, Flipkart, Myntra, Facebook etc.
- E-commerce participant means any person resident in India selling goods including digital product( Electronic books, podcast, blogs, video etc.) or providing service or both through digital facility or platform for electronic commerce.
- E-commerce means the supply of goods or services or both including digital products over the digital or electronic network. In simple words, the business of buying or selling of goods/services over the internet.
- Resident means as defined under section 6 of the income tax act.
- Relaxation is available only for resident Individual and HUF up to a specified amount i.e. apart from that TDS will be deducted in case of every resident person by e-commerce operator irrespective of transaction amount. So, this is going to be very tough for E commerce operator for deduction of TDS in case of individual or HUF because a person being individual can sell his goods on multiple platform and can ask for no deduction of TDS till the time total amount exceed the threshold limit of Rs. 5 lakh because burden for deduction of TDS is on e-commerce operator.
- So, for the ease in respect of avoidance of non-compliance they can go for the options like, in coming days they must ask for declaration from individual regarding the selling of goods on more than one electronic platform or regarding that the once amount exceeds the specified limit then individual must inform him about that or continue to deducted the TDS from very start.
5. Extract of Section 194-0 of Income Tax Act, 1961
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.]
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As per provision of Sub section 3 of 194 O-once tax deducted by e commerce company on transaction, the same transaction shall not be liable to tax deduction at source under any other provision of this Chapter, then what about tds on service fees & commission deducted by e commerce company. shall it continue or not to deduct.
So, the TDS which we deducted on their Invoice amount in Sec 94C and 94H is no more needed? Now they will deduct on our behalf?
From 1st October 2020 an e-commerce aggregator/ operator will b held responsible both for TCS on GST u/s 52 of CGST Act 2017 and TDS @1% on taxable value.