Section 194O -TDS on E-Commerce Transactions

In this post, we will discuss in detail on Section 194O – TDS on E-Commerce Transactions.

We will cover the following topics in this post:

Introduction to Section 194O

Earlier, there was no Tax Deducted at Source (TDS) when a payment was made to any e-Commerce participants. They had to independently file their Income Tax Return (ITR). Therefore, many didn’t file their ITR resulting in tax evasion.

To change this scenario the Government of India introduced Section 194O- TDS on E-Commerce Transactions.

The difference between E-Commerce Operator and E-Commerce Participant are as below:

  • E-Commerce Operator: A person who owns, operates, or manages a digital/electronic platform for the sale of goods and services. One makes payment to the e-Commerce participant on such sales. For example, popular e-commerce operators are Amazon, Flipkart, Myntra, etc.
  • E-Commerce Participant: A person who is a resident of India selling goods, services, or both through an electronic platform provided by an e-commerce operator. For example, the various local dress brands like SASSAFRAS, BIBA you see on Amazon, Flipkart, Myntra.

Purpose of Section 194O

The purpose behind the introduction of Section 194O is to bring e-commerce participants under the Income Tax. Now, with more offers and cash backs, customers use digital platforms for buying/selling goods and services.

Some of the major reasons for the above cause are:

  • Sellers’ perspective: It requires less setup cost and less effort to the search of buyers.
  • Buyers’ perspective: Many options are available in a single platform, and you can get product comparisons with ease.

Thus, there is a huge increase in the number of e-commerce users. As there is an increase in demand for products there is an increase in the supply of products. As a result, there are many e-Commerce participants.

It is difficult to identify e-Commerce participants who don’t file their ITR. Thus, the government has now widened the base to bring such e-Commerce participants under the Income Tax.

Rate of TDS under Section 194O

E-commerce operator will deduct TDS under Section 194O from E-commerce participant at the rate of 1% in every case, and it is increased to 5% for non-Pan/Aadhaar cases.

Applicability

The applicability criteria of Section 194O are:

  • Resident & Non-Resident E-commerce operators making payment to Resident e-commerce participants for the sale of goods or services through a digital/electronic platform.
  • Applicable for all transactions from 1st October 2020 onward.
  • E-commerce operators deduct @1% TDS on the gross amount of sales of goods/services.
  • TDS rate of 1% is applied either at the time of credit to the e-commerce participants or when the purchaser is making payment directly to e-commerce participants.

Note: Goods and services include digital products (E-book, podcast, blogs, audio-video)

Exemption for TDS under Section 194O

TDS under Section 194O is not deducted for the following cases:

  • It is exempted for individuals or HUF whose aggregate gross sale of goods/ services or both is not above 5 Lakhs in a Financial Year. However, they should already furnish PAN and Aadhaar to the e-commerce operator.
  • Any payment covered under this Section is not liable to TDS under any other provision of the Act.

Note: This exemption does not apply to any amount received by an e-commerce operator for hosting advertisements or providing any other services.

Points to Remember

  • Section 194O does not apply to non-residents of E-Commerce participants.
  • Now Section 197 provides that a lower withholding certificate (Form -13) may be obtained for Tax deduction under Section 194O from the Tax Authorities.

With that, we have come to the end of this post. Share your queries with us in the comment section below.

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