Section 194-O
- Tax Deducted at Source commonly known as TDS, is a system of deduction of tax at the point of generation of income. E-Commerce is a huge platform which is growing at an unprecedented rate all over the world. Thus, to widen the Tax base, In the Union Budget 2020, Section 194-O was introduced
- According to Section 194-O, an E-Commerce operator is required to deduct TDS for facilitating any sale of goods or providing services through an e-Commerce participant.
- It’s applicable from 1st October 2020.
- Now to get a better clarity, let’s go deeper to understand what E-commerce operator and participants are and what will the impact from the introduction be.
Who are e-commerce operator and participants?
- E-Commerce Operator: An E-Commerce operator is a person who owns, operates, or manages a digital/electronic facility for the sale of goods and services. He is responsible for making payments to the e- Commerce participant on such sales. For example, Amazon, Flipkart, Snapdeal, Swiggy, Zomato, Uber etc.
- E-Commerce Participant: An 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.
What does the Section 194-O say?
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,
- E-Commerce operators should deduct TDS @1%
- at the time of credit of the amount of sale of goods, services, or both to the account of an e-commerce participant or
- at the time of making payment to an e-Commerce participant, by any other mode,
whichever is earlier
If the E-Commerce participant does not furnish PAN, TDS must be deducted at the rate of 5%, as per provisions of Section 206AA.
Exceptions
E-commerce operator is not required to deduct TDS if, the gross amount of sale of goods, services, or both during the previous year of the E-commerce participant being a resident individual or HUF does not exceed Rs 5 lakh and if the participant has furnished his PAN or Aadhaar.
No TDS will be deducted if the participant is a non-resident.
Impact:
Example
Pre TDS scenario
If Mr. A bought gadget from M/s E-retail through an e-commerce operator for ₹10,000, M/s/ E-retail received ₹9,000 for such sale (after deduction of commission, service fee etc.) from the e-commerce operator.
Post TDS scenario
Under the provisions of section 194-O, the e-commerce operator will now deduct tax at source at 1% before remitting the payment to M/s. E-retail i.e.
Amount paid by customer 10,000
Less: Commission/ service fee 1,000
Less: TDS @1% of 10,000= 100
Amount credited or paid to M/s E-retail’s account = 8,900
When TDS is to be deducted?
For example, M/s. E-retail is selling its products through Flipkart. Mr. A buys this product online from M/s E-retail for 49,500 on 10th October 2020.
Flipkart credits the account of M/s E-retail on 10th October 2020, but Mr. A makes the payment directly to M/s E-retail on 25th October 2020.
Here, Flipkart is required to deduct TDS at the time of credit to the party or making payment, whichever is earlier.
In this case, TDS should be deducted on 10th October 2020.
Thus, the income tax department plans to bring the unorganized sector into the tax net and widen the overall tax base. The move to tax e-commerce transactions at source was one way to reduce litigation.
