/ CBDT

Complete Overview of Tax Deducted at Source U/s 194O

TDS under Section 194O.

Complete Overview of Tax Deducted at Source Under Section 194O

E-commerce operators (ECOs) are needed to deduct TDS @ of 1 % on Gross amount of sales facilitated via their Online platforms u/s 194-O. The CBDT has issued a circular outlining the tax deduction process in certain transactions, especially where multiple e-commerce operators are involved, such as through Open Network for Digital Commerce (ONDC).

  • E-commerce operators & participants
    • E-commerce participants: E-commerce involves various participants, each playing a specific role in the online buying and selling process, E-commerce participants register on online platform owned by ECO & use platform to sell Goods & Services. E-commerce participants must be residents of India.. Here are some key participants in the e-commerce ecosystem, For example: Consumers/Buyers, Sellers/Retailers, E-commerce Platforms, Payment Gateway Providers, Shipping and Logistics Companies, E-commerce Service Providers, Manufacturers/Suppliers, Digital Marketing Agencies, Customer Support Services, Regulatory Bodies, Developers and IT Professionals, Review and Feedback Platforms.
    • E-commerce operators: typically refers to individuals or entities that manage, own, or operate the e-commerce platforms. E-commerce operators own the online facility to give Goods & Services on their platform; Normally e-commerce operators are responsible for managing and maintaining the owned Online E-commerce platform. He is responsible for making payments to the e-Commerce participant on such sales, These operators are responsible for the overall functioning, maintenance, and growth of the online marketplace. Here are different types of e-commerce operators. For example : Marketplace Operators, Retailers/Storefront Operators, Payment Gateway Operators, Logistics and Fulfillment Operators, Technology and Platform Providers, Advertising and Marketing Operators, Data and Analytics Providers, Customer Support and Service Providers, Regulatory Compliance and Security Services, Review and Feedback Platforms.

Here are the key points related to Section 194O:

  • Applicability: Section 194O is applicable to e-commerce operators who facilitate the sale of goods or the provision of services through their digital or electronic platforms.
  • Nature of Payment: TDS is applicable when the e-commerce operator makes a payment to the e-commerce participant (seller/service provider).
  • Threshold Limit: TDS under Section 194O is applicable if the gross amount of sales or services or both during the previous year exceeds Rs. 5,00,000.
  • Rate of TDS: The TDS rate under Section 194O is 1% of the gross amount of sales or services or both. However, if the e-commerce participant does not provide a PAN/Aadhaar, the TDS rate is higher at 5%.
  • Timing of TDS Deduction: TDS is deducted at the time of credit of the amount to the account of the e-commerce participant or at the time of payment, whichever is earlier.
  • Payment to Non-Residents: If the e-commerce participant is a non-resident, the TDS rate may vary, and other provisions of the Income Tax Act may be applicable.
  • Filing of TDS Returns: The e-commerce operator is required to file TDS returns in the prescribed form and furnish a TDS certificate to the e-commerce participant.
  • As per Section 194O, An E-commerce Platform is responsible for deducting TDS at the rate of 1 percentage of the gross amount credited to the seller’s account or at the time of making payment, whichever is earlier.
  • Tax Deducted at Source Under Section 194O applicable to any transaction e-commerce operator facilitates involving services & goods which includes Technical & professional services.
  • The Tax Deducted at Source must be deducted at the time of crediting the seller’s account, irrespective of the manner & mode of payment. New Section 194O imposes taxes on the e-commerce platform, which was not done before the Financial Act 2020.

CBDT CIRCULAR NO. 20, DATED 28-12-2023 & RELEASES GUIDELINES FOR TDS U/S 194-O:

The Central Board of Direct Taxes has released a circular to address a number of taxpayer concerns in light of the rise in transactions with online and e-commerce companies. The CBDT circular also update on recommendations for conveyance or shipping costs, indirect taxes, modifications in the event of a purchase return, & tax reduction in the case of several e-commerce operators. Moreover, savings offered by e-commerce have received special attention.

Few issues are addressed in general guidelines stated The Central Board of Direct Taxesin Circular No. 20 of 2023,

Question : ECO imposes commission or convenience fees per transaction, delivery fees, etc on transaction of sale of goods or services via ECO Platform. Do these elements constitute part of the “Gross amount” for TDS purposes u/s 194-O of the Income Tax Act?

Ans: These charges are considered part of the gross amount. Payments made to the network provider or via platform, such as Open Network for Digital Commerce, which facilitates online transaction, will also be included in the gross amount subject to Tax Deducted at Source U/s 194-O of the Income Tax Act.

Question: Who should TDS where there are multiple ECO involved in a transaction?

Ans: In compliance with section 194-O of the Income Tax Act, Responsibility lies with the ECO making the payment to the seller.

Application of Sec 194 OVs. Section 194 H:  

Question: For the Commission that is Paid to Amazon , Whether I have to deduct TDS u/s 194H . Since in 194O , TDS is already deducted on Gross Amount ie. Including Commission Amount.

Ans: Section 194O states that if TDS is Deducted for a Particular transaction under this Section ie.194O then TDS need not be deducted under any Other Section.  But 194O says , If TDS is deducted under 194O for a particular transaction then there’s no need to deduct TDS under any other section

CBDT clarifies TDS/TCS u/s 194-O, 194Q & 206C(1H); No TDS on sale through e-auction:

The Central Board of Direct Taxes vide Circular No. 20 of 2021 dated November 25, 2021 has clarified that if the component of VAT, sales tax, excise duty, CST, GST, etc., have been indicated separately in the invoice, then TDS under section 194Q is to be deducted without including such indirect taxes.

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