“Explore Section 194-O on TDS for E-commerce operators and online businesses. Learn about the nature of transactions, entities involved, FAQs, and key aspects. Find answers to common questions on TDS rates, when to deduct, and more. Stay informed and compliant in the evolving digital business landscape.”

Introduced on October 1, 2020, Section 194-O aims to to make sure that the income generated through modern day businesses of Online sales in Aggregator Model are under the loop and reported to the government. This article explores the nature of transactions, the entities involved, and the key aspects of TDS deduction under this section.

Nature of Transaction where TDS needs to be deducted under 194-O:

Typically, on Aggregator model, there is:

  • A seller who is called as E commerce participant or ECP (For eg. Any Seller on Amazon) and such seller sells the Goods or Services
  • An Online platform called as E commerce operator (Acting as aggregator) through which the E commerce participant sells its goods or services.  (For eg. Amazon itself or Flipkart or Meesho).
    In return the ECO (Amazon) Charges some commission or facilitation fees for such sale from the Seller or ECP. 
  • A customer who places the order and makes the payment usually to the ECO/ Aggregator.

As per section 194-O, TDS has to be deducted by the E Commerce Operator,  (Like Amazon) when the E commerce operator  makes the payment to E Commerce Participant (Seller listed on E commerce website like Amazon).

Who/What is E-Commerce Operator, E-Commerce Participant, or E Commerce Business?

As per definition:

  • e-commerce operator means a person who owns, operates or manages digital or electronic facility or platform for electronic commerce;
  • 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
  • E commerce means the supply of goods or services or both, including digital products, over digital or electronic network.

Understanding the Provisions of Section 194O with Questions and Answers:

Q. Who is required to deduct TDS?

A. As per Section 194-O, the E-Commerce Operator has to deduct TDS on Sales made (For Goods or Services Both) through E-Commerce Operator.

Note: E-Commerce Operator is required to deduct TDS even where the amount is paid by the customer directly to the seller.

[As per Explanation to subsection 1]

Q. What should be Rate of TDS?

A. The rate shall be 1%.

Note: If the E Commerce Participant does not provide with Aadhar or PAN, The rate of TDS shall be 5% as per section 206AA.

Q. On what value should the TDS be deducted?

A. TDS has to be deducted on Gross Value of Sales.

Note: If the Sale value is 100Rs and 30Rs is commission, TDS has to be deducted on entire 100Rs and not 70Rs.

Q. When to deduct the TDS?

A. TDS has to deducted,

  • At time of Credit or
  • At time of Payment, to the E-Commerce Participant
    Whichever is earlier.

Q. When TDS u/s 194-O is not required to be deducted?

A. TDS is not required to be deducted when:

  • The Seller i.e. E-Commerce Participant is an Individual or HUF & the amount received or likely to be received from such sale during the FY does not exceed 5 Lakh Rupees, OR
  • The Seller is Non Resident of India

Q.  TDS u/s 194-O and TDS under other sections simultaneously?

A. Where TDS is deducted or not deducted (because of Individual and HUF having sale below the threshold) as per sub-section 1 or 2 of Section 194-O, No TDS needs to be deducted under other provision.

Q.  Is TDS applicable on Sale of Goods only or on Service or on Both?

A. TDS is applicable on Both sale of goods or services.

Q. Is TDS needs to be deducted when the E-Commerce Operator is a Non resident or/and the buyer is also Non Resident.

A. Yes, As per section 194-O, TDS is not required to be deducted when the E-Commerce Participant is Non resident. There is no exemption to the E-Commerce Operator or Buyer on the basis of Residential status.

Q. If Payment is made directly by the Customer to the E-Commerce Participant. Is the E-Commerce Operator still required to deduct TDS on that?

A. Yes, in such cases also as per Explanation to Sub section 1, TDS needs to be deducted by the E-Commerce Operator provided such sale has been facilitated through the E-Commerce Operator.

Note: Practically as an E-Commerce Operator, the E-Commerce Operator shall have the control over the Sales and thus the E-Commerce Operator has to make sure that the payment should be made in such a way that the E-Commerce Operator gets the share of TDS just like it gets the share of Commission. Subsequently E-Commerce Operator shall pay the TDS.

Q. On what value the TDS needs to be deducted? In a case where:

  • Sale value is 100Rs
  • Cash back is 25Rs
  • Commission retained by the E-Commerce Operator is 10Rs
  • GST is Rs 5.

A. In such cases the TDS has to be deducted on the Gross Value i.e. 100Rs.

Note: With respect to GST it is well settled position that No TDS has to be deducted on GST Component. But in my humble opinion because of the language used it is safer to deduct TDS on the Amount including the GST to avoid unnecessary litigation at a later stage.

Q. Where the seller is an Individual and is receiving professional fees. Is it required to deduct TDS u/s 194-O in following case:

Aggregate value of such receipts during the FY is:

  1. More than 5Lakhs.
  2. Less than 5Lakhs.

A. In both the cases No TDS needs to be deducted.

Q. What should be done in case of Sale Return. Should we reverse or take a refund of TDS?

A. In such cases no adjustment or refund has to be made.

[Since the law does not specify for refund or adjustment but only for payment of TDS.]

Note: The seller can claim the amount in its ITR.

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Qualification: CA in Practice
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Location: Raipur, Chhattisgarh, India
Member Since: 10 Jun 2021 | Total Posts: 2

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February 2024