TDS Obligation on e-commerce operator under Section 194O of Income Tax Act, 1961
Expansion of WHT obligation to cover e-commerce transactions where e-commerce operator facilitates the transaction on e-commerce platform.
Introduced by Finance Act, 2020 and applicable from 1 October 2020.
Purpose
In order to widen and deepen the tax net by bringing participants of e-commerce within tax net, a new section 194O is introduced in the Act so as to provide for a new levy of TDS at the rate of one per cent.
A. Some important definitions
1. What is e-commerce
“Electronic commerce” means the supply of goods or services or both, including digital products, over digital or electronic network; (as per explanation to section 194-O)
Any person(e-commerce participant) selling goods or services on e-commerce platform(Like Amazon, Paytm, OYO etc). For example, any person selling toys (toys are physical goods) online an Amazon. E-commerce covers physical as well as digital goods. Therefore, any software company selling software(software is a digital good) on Amazon are also covered within the purview of this section.
“services” includes ‘‘fees for technical services’’ and fees for ‘‘professional services’’, as defined in the Explanation to section 194J.
Definition of professional services and fees for technical service as per Explanation to Section 194J reproduced below for your ready reference:-
(a) “professional services” means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section;
(b) “fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;
Definition of fees for technical services as per Explanation to Section 9 reproduced below for your ready reference:-
“For the purposes of this clause, “fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”.”
2.Who are “e-commerce participants”
“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; (as per explanation to section 194-O)
Therefore, any person selling goods or providing services in e-commerce transaction by listing them with e-commerce operator are e-commerce participants. Therefore, in our above example the person selling toys on Amazon are e-commerce participant.
3. Who are “e-commerce operators”
“e-commerce operator” means a person who owns, operates or manages digital or electronic facility or platform for electronic commerce; (as per explanation to section 194-O)
Both resident and non-resident e-commerce operator are required to comply with the provisions of section 109-O. For example, Amazon, Flipkart, Paytm, OYO, AirBnB, Uber, OLA etc.
B. Subsection wise Analysis of Section 194 of Income Tax Act, 1961
1. Subsection 1 and 2
Subsection (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.
Analysis
Hotel Radisson listed their rooms on OYO rooms for booking. Different customers made online booking of rooms through OYO.
Hotel Radisson:- Selling hotel services online by listing their rooms on OYO.
OYO owns an electronic platform “OYO rooms”, therefore OYO is an e-commerce operator and Hotel Radisson is e-commerce participant.
Customers booking rooms on OYO made payments of Rs. 10,000 to OYO rooms. Therefore, in order to comply with the provisions of Section 194-O OYO rooms at the time of making payment to Hotel Radisson is required to deduct TDS @ 1% on gross amount of such service i.e. 1% of Rs. 10,000.
What if customer makes payment at hotel desk at the time of checkout?
In that case OYO received nothing and entire gross consideration of Rs. 10,00 is received by Hotel Radisson. Now Explanation to Subsection 1 comes into play.
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.
Therefore, in above case OYO is required to deduct TDS @ 1%.
How will it practically work
Let us take a very common example of Uber. Everyone knows that if we are booking a ride for Rs. 100 then out of that Rs. 100, Rs. 70 goes to the driver and Rs. 30 goes to Uber. Now if we make payment to Uber then Uber will deduct Rs. 30 and balance Rs. 70 will be paid to driver. Now what if we make cash payment to driver, how will Uber receive the 30% facilitation fee. In that case Uber will adjust the facilitation fee of that ride from some other ride for which the payment is directly made to Uber. Same ways OYO will pay that 1% TDS from his own pocket and will adjust the facilitation fee as well as the TDS amount from next payment directly received by OYO.
Section 194-O may not apply to e-retailers who sell goods or services on their own platform and not through e-commerce operator.
Therefore, if Radisson is taking online bookings through Radisson.com then in that case provisions of section 194-O shall not be applicable. The simple reason behind the same is that Radisson can’t deduct its own TDS.
Subsection (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.
Analysis
Threshold given in subsection 2
In case of Individual/HUF e-commerce participants, if gross receipts through e-commerce operator is less than 5 Lakh during the previous year in that case e-commerce operator is not required to deduct TDS for such e-commerce participants.
In case the PAN of Individual/HUF is not furnished than TDS @ 5% is to be deducted and threshold of 5 Lakh not provided in that case.
2. Subsection 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:
Analysis
In case TDS took place under these provisions or exempt under this provision than on such sale or service no tax will be deducted under other provisions. Therefore, if FTS or professional services defined u/s. 194J are provided through online platforms then 1% TDS applicable as against 2% for FTS or 10% for professional services.
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).
Analysis
For example, different retailers listed their product on Paytm and Paytm charged listing(advertising fees) for such listing. Different customers are purchasing those products from Paytm. Now as per proviso to Sub section 3, the advertising fees received by Paytm will not be included in the gross consideration.
3. Subsection 4 and 5
(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.
4. Subsection 6
(6) For the purposes of this section, e-commerce operator shall be deemed to be the person responsible for paying to e-commerce participant.
Similar to explanation 1 to subsection 1.
Therefore, it’s just a clarification to the above mentioned explanation.
C. Miscellaneous provisions
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.
TDS not to be deducted on CGST, SGST or IGST component. Although, there is no such circular in place for the TDS leviable u/s 194O on the GST portion on sale of goods at present, a similar clarification regarding the TDS on the GST portion of sale of goods can be expected.
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