The Union budget of 2020 has introduced Section 194-O that mandates an E-commerce operators to deduct TDS on any transaction of sale of goods or offer any services through their platform. All such transaction after Oct 01, 2020 will be subjected to TDS under this section.
The precise purpose of TDS deduction under Section 194O is to widen the TDS base by bringing various e-Commerce participants under the tax. Since new age customers prefer digital platforms for buying or selling of goods and services due to lesser costs and better choice. With mushrooming of new entrepreneurs, where sales are done through the e-commerce providers, the authorities are looking forward to increase tax base through this section of TDS.
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.
An e-Commerce participant is a person who sells goods, services, or both through an electronic facility provided by an e-Commerce operator. He must be a resident of India.
Details about Section 194-O
E-Commerce operators is required to deduct TDS @1% while crediting sales proceeds in the sellers accounts or making payments against those credit, whichever is earlier. This is also applicable in case the credit is towards the services offered by an e-commerce participant.
However, in case where gross amount for sales of goods or services in the previous year does not crosses Rs. 5 lakhs and Ecommerce participant has provided PAN or Aadhaar, the deduction of TDS under section in not required.
In case, where PAN or Aadhaar is not furnished, TDS must be deducted at the rate of 5%, as per provisions of Section 206AA.
No TDS deduction is required in case where the ecommerce participant is a non-resident.
Exceptions to Section 194-O
- Individuals or HUFs where amount paid or credited is less than 5 lakhs in a financial year.
- Non Resident e-commerce participants
TDS rate under Section 194- O on E-commerce business participants
Under section 194-O, TDS is required to be deducted @ 1% barring cases in which an e-commerce participants does not have PAN or Aadhar card number, wger such TDS is required to deducted @ 5%.
TDS under Section 194O- Central Board of Direct Taxes (CBDT) issues Guidelines
To eliminate the ambiguity for the applicability of section 194-O of the Act, the CBDT has given circular no.17 of 2020 on 29.09.2020.
- Exemption on Dealing through different Exchanges:
It has been expressed that at some point in these exchanges there is no one-to-one agreement between the purchasers and the vendors. As such, it is given that the scope of section 194-O, of the Act, will not be pertinent according to: –
- dealing in commodities and securities which are exchanged through perceived stock exchanges or cleared and settled by the perceived clearing company, including perceived stock exchanges or perceived clearing organizations situated in the International Financial Service Center.
- dealing in power, sustainable power certificates, and energy saving endorsements traded through power exchanges enlisted as per Regulation 21 of the Central Electricity Regulatory Commission (CERC); and
For this reason,
- ” Recognized clearing corporation ” will have the significance relegated to it in section 10 of clause (I) of the Explanation to clause (23EE) of the Act.
- Section 43 of the Act provides meaning of ” Recognized stock exchange ” in provision (ii) of the Explanation 1 to sub-section (5); and
- “International Financial Services Centre ” will have the significance relegated to it in Special Economic Zones Act, 2005’s section 2 clause (q).
- Exemptions on payment gateway:
It is provided that the payment gateway will not be required to deduct tax under section 194-0 of the Act on a transaction, if the tax has been deducted by the e-commerce operator under section 194-0 of the Act, on the same transaction.
- Applicability of on insurance agent or insurance aggregator
It is provided that in case of Insurance business, the years subsequent to the first year, if the insurance agent or insurance aggregator has no involvement in transactions between insurance company and the buyer of insurance policy, he would not be liable to deduct tax under section 194-O of the Act for those subsequent years. However, the insurance company shall be required to deduct tax on commission payment, if any, made to the insurance agent or insurance aggregator for those subsequent years under the relevant provision of the Act.