Section 194O, introduced in the Union Budget 2020, necessitates e-Commerce operators to deduct TDS for any goods sale or services provided via an e-Commerce participant. This section's implementation began on 1 October 2020.
What is e-Commerce?
This is someone who runs an online platform for selling goods or services, and is in charge of payments.
This refers to someone who sells products or services online via a platform provided by an e-Commerce operator. This person must live in India.
Section 194O Scope
E-Commerce operators are required to deduct TDS @1% during credit or payment to the e-commerce participant.
Resident individual or HUF e-commerce participant
No TDS deduction is required if the annual gross amount from the sale of goods or services doesn't exceed Rs 5 lakh, provided the participant has submitted his PAN or Aadhaar.
If the participant doesn't submit his PAN or Aadhaar, a 5% TDS deduction is mandatory as per Section 206AA.
Non-resident e-commerce participantAs mentioned, an e-Commerce participant should be an Indian resident. Therefore, TDS will not be deducted for non-residents.
For instance, company XYZ sells products on Flipkart. A customer buys a product for Rs 50,000 on 1 October 2020.
Flipkart adds the money to XYZ's account on the same day, with the customer paying XYZ directly on 15 October 2020.
Flipkart must deduct 1% TDS on Rs 50,000 at the time of either payment or credit, whichever comes first. Hence, TDS should be deducted on 1 October 2020.
Section 194O Objective
Section 194O was introduced to expand the TDS base to include e-Commerce participants. This is due to the increasing trend of customers using digital platforms for transactions:
Sellers’ ViewpointSetting up is less costly and finding buyers is easier.
Multiple choices are provided on one platform, making product comparison simple.
Due to this, e-Commerce users have grown. Identifying small sellers not filing tax returns is challenging. Therefore, the government has expanded the tax base to include these e-Commerce participants.
Section 194O Exceptions
Prior to Section 194O, payments made to e-Commerce participants were not subject to tax deduction. It was up to these participants to file their own taxes, a responsibility often neglected by smaller entities, leading to tax evasion.
With Section 194O, the government expects increased revenue through reduced tax evasion.