Over the last decade, lots of e-commerce participants have popped up in the Indian market. Due to the ease of doing business online, low set up cost & easy connection to buyers more and more people are selling their goods & services on e-commerce platforms. A lot of these e-commerce participants are small traders who do not file their tax returns. These sellers are difficult to identify by the IT department. In the Union Budget 2020, the government introduced Section 194O. Section 194O covered TDS on e-commerce sales. This section is applicable from 1st October 2020.
What is section 194O?
Section 194O states that an e-commerce operator is required to deduct TDS on the facilitation of any sale by an e-commerce participant.
E-Commerce operators need to deduct TDS at the rate of 1% at the time of credit of the amount to e-commerce participants or at the time of payment for the sale of goods or services or both. The TDS would apply either at the time of credit to the e-commerce participants (or payment by any mode) or when the buyer is making the payment directly to e-commerce participants.
Note: The TDS is applicable on the gross amount exclusive of GST.
Applicability of TDS on E-commerce Sales
- When an e-commerce participant is a resident Individual or HUF: E-commerce operators are liable to deduct 1% TDS for resident individual and HUF e-commerce participants.
If PAN or Aadhaar are not provided then TDS is deducted at the rate of 5% as per Section 206AA.
Raj is a registered e-commerce participant on Amazon India (an e-commerce operator). Raj has total sales of INR 6,10,000 on Amazon (exclusive of 18% GST). Amazon charges a 6% commission on the gross sales.
- Since Gross Sales exceeds Rs. 5,00,000 and Raj is a resident Individual, Amazon India should deduct TDS @ 1% on Gross Sales before making the payment.
- TDS = 1% of 6,10,000 = INR 6,100
- Commission = 6% of 6,10,000 = INR 36,600
- Payment to Raj = 6,10,000 – 36,600 – 6,100 = INR 5,67,300
- Amazon has to deposit TDS of INR 6,100 with the Income Tax Department
- If Raj has not provided PAN or Aadhaar, then TDS should be deducted at 5% irrespective of the gross sales amount
- When an e-commerce participant is a non-resident: In the case of a non-resident e-commerce participant Section 194O is not applicable. For non-residents TDS is deducted under Section 195.
Exceptions for TDS on E-commerce Sales
- E-commerce operators are not required to deduct TDS if the gross sale amount from the previous year has been less than INR 5,00,000; and if the E-commerce participant has provided their PAN or Aadhaar.
- Non-resident e-commerce participants are not covered under section 194O.
This section will now allow the government to reach the smaller sellers in the market who are currently not filing their taxes. This will also increase tax revenue by reducing tax evasion.
E-commerce means the supply of goods or services or both, including digital products over digital or electronic networks.
An e-commerce Operator is defined as any person who operates, owns, or manages digital or electronic facility/platform for electronic commerce.
An e-commerce Participant (must be a resident of India) is defined as a person who sells goods or services, or both through an electronic facility provided by an e-commerce operator.