The Finance Act, 2020 has introduced a new Section 194-O for deducting 1% TDS on payments made to E- commerce Participants, which will be applicable for the transactions from 1st October 2020 onward.
In simple words, this section states that if any person purchased any product or received any service through an E-commerce operator (ECO) from any person then the TDS should be deducted by ECO @1%.
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WHAT ARE E-COMMERCE OPERATORS AND PARTICIPANTS?
E-commerce operator:
An E-commerce operator is a person who owns, operates, or manages a digital/electronic facility with the motto of selling of goods and services. He is responsible for making payments to the e-commerce participant on such sales.
E-commerce participant:
An E-commerce participant is a person who sells goods, services, or both through a digital/electronic facility provided by an E-commerce operator. He must be a resident of India.
EXCEPTIONS TO SECTION 194-O
Non- resident E-commerce participant are exempted from the scope of this section.
Resident Individuals and HUF are exempted with a ceiling limit of ₹5lakh. This means an E-commerce operator is not required to deduct TDS if the amount, paid or credited to individuals/HUF during a financial year, does not exceed ₹5lakh.
PROVISIONS OF SECTION 194-O:
E- commerce operator is required to deduct TDS @ 1% (5% if PAN of deductee is not available according to section 206AA) of the value of goods or services of an ECP sold through an ECO using his website at the time of credit or payment (whichever is earlier) of the amount of sale to the account of an ECP by ECO. E-commerce operator is not required to deduct TDS if the amount, paid or credited to individuals/HUF during a financial year, does not exceed ₹5lakh. that means that Resident Individuals and HUF are exempted with a ceiling limit of ₹5lakh.
SCOPE OF SECTION 194O
E-commerce participant being a resident individual or HUF:
E-commerce operator is not required to deduct TDS if the gross amount of supply of goods, services, or both during the previous year does not exceed Rs 5 lakh and if the e-Commerce participant has furnished his PAN or Aadhaar Card.
If the e-Commerce participant does not furnish his PAN or Aadhaar, TDS must be deducted at the rate of 5%, as per provisions of Section 206AA.
E-Commerce participant being a non-resident:
As stated earlier, an e-Commerce participant must be a resident in India. If the participant is a non-resident, no TDS will be deducted.
PURPOSE OF SECTION 194O
The purpose of the introduction of Section 194O is to widen the TDS base by bringing e-Commerce participants under the tax. Of late, customers prefer digital platforms for buying or selling of goods and services because:
From the sellers’ perspective:
It requires less cost for creating the setup and less effort for the search of buyers.
From the buyers’ perspective:
Many options are available at one platform and the comparison of products becomes very easy.
This has resulted in an increase in the number of e-Commerce users over a period of time. It is difficult to identify small sellers (e-Commerce participants) who don’t file their income tax returns. Thus, the government has enlarged the tax base to bring such e-Commerce participants under the tax base.
