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Section 194O – TDS on Payments Made to e-commerce Participants

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?

E-Commerce Operator
This is someone who runs an online platform for selling goods or services, and is in charge of payments

E-Commerce Participant
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.

For buyers
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

  • Non-resident e-Commerce participants are not covered by this section.
  • e-Commerce operators do not need to deduct TDS if payments to individuals/HUF in a financial year are below Rs 5 lakh.

Previous Law

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

Conclusion

With Section 194O, the government expects increased revenue through reduced tax evasion.

 

The Tax Heaven

Mr.Vishwas Agarwal✍📊, a seasoned Chartered Accountant 📈💼 and the co-founder & CEO of THE TAX HEAVEN, brings 10 years of expertise in financial management and taxation. Specializing in ITR filing 📑🗃, GST returns 📈💼, and income tax advisory. He offers astute financial guidance and compliance solutions to individuals and businesses alike. Their passion for simplifying complex financial concepts into actionable insights empowers readers with valuable knowledge for informed decision-making. Through insightful blog content, he aims to demystify financial complexities, offering practical advice and tips to navigate the intricate world of finance and taxation.

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