Section 194O -TDS on E-Commerce Transactions
An introduction to Section 194O - TDS on E-Commerce Transactions
This post will look in-depth at Section 194O – TDS on E-Commerce Transactions. The following subjects will be addressed in this post:
Introduction to Section 194O
Earlier, e-commerce participants were not required to pay TDS on their earnings. They had to file their own income tax returns, but many did not do this. This led to tax evasion. The Government of India introduced Section 194O to address this issue, which mandates TDS on E-Commerce Transactions.
Distinguishing between an E-Commerce Operator and an E-Commerce Participant:
- E-Commerce Operator : Refers to an individual who owns, manages, or operates a digital or electronic platform for selling goods and services. Such individuals make payments to e-commerce participants for sales made on the forum. Notable examples of e-commerce operators include Amazon, Flipkart, and Myntra.
- E-Commerce Participant : This pertains to a resident of India who sells goods, services, or both through an electronic platform provided by an e-commerce operator. For instance, various local clothing brands such as SASSAFRAS and BIBA are available on platforms like Amazon, Flipkart, and Myntra.
Purpose of Section 194O
The primary aim is to bring online sellers under the coverage of the Income Tax Act. Lately, more individuals are favouring online markets over physical ones for these reasons:
From the Perspective of Business Owners:
- Starting a business is cost-effective.
- Makes it easy for potential buyers to find them.
- Can connect with a larger global audience.
From the Perspective of Buyers:
- Numerous options are available on a single platform.
- Comparing products is straightforward.
- Ability to purchase products from around the world.
Rate of TDS under Section 194O
For e-commerce sellers who are individual residents or part of a Hindu Undivided Family (HUF), if their total sales go beyond Rs. 5,00,000 in a financial year, a TDS rate of 1% will be taken from their total sales amount. If the person receiving the payment (deductee) doesn’t provide their PAN or Aadhaar details, a TDS rate of 5% will be deducted, regardless of their sales amount.
Note: You can pay your monthly TDS in less than 30 seconds with just three easy steps using our new TDS Payment tool, and it’s completely free.
Applicability
The applicability conditions for Section 194O are :
- E-commerce operators, whether Resident or Non-Resident, who are disbursing payments to Resident e-commerce participants for goods or services sold via a digital or electronic platform.
- Applicable to all transactions occurring from October 1st, 2020 onwards.
- E-commerce operators are responsible for deducting a 1% TDS on the total sales amount of goods or services.
- The 1% TDS rate applies when funds are credited to the e-commerce participants or when the buyer directly pays the e-commerce participants.
Note: The scope of goods and services encompasses digital items such as E-books, podcasts, blogs, and audio-video content.
Exemption for TDS under Section 194O
There are specific cases where section 194O doesn’t apply:
- The rules in section 194O don’t affect e-commerce participants who are not residents of the country.
- Only Indian citizens and Hindu Undivided Families (HUFs) must meet a minimum limit of ₹5 lakhs. If the payments to individuals or HUFs in a year don’t go over ₹5 lakhs, e-commerce companies don’t have to deduct TDS.
Penalties Under Section 194O
When the deductor (E-commerce operator) doesn’t file or pay the TDS, they will face the following penalties:
- 1% monthly interest or part thereof for not deducting TDS.
- 1.5% monthly interest or part thereof for not paying TDS by the 7th of each month.
- A penalty of Rs 200 per day for not filing TDS returns every quarter.
FAQ
1,Who is considered an e-commerce operator?
Ans: An e-commerce operator is someone or a business entity that takes charge of, possesses, or runs a digital or electronic platform designed for electronic commerce. Examples of these platforms include well-known names like Shopify or Amazon.
2,What is the meaning of TDS on e-commerce transactions?
Ans: TDS (Tax deducted at source) on e-commerce transactions, as per section 194O, refers to a portion of the total sales that e-commerce operators must remove and submit to the Government.
3,What does an online shopping service refer to?
Ans: E-commerce is a term that describes business transactions carried out through digital or electronic networks, often involving the online sale of physical goods.
