TDS on E commerce Operator

TDS on E-commerce operators

Finance minister Nirmala Sitharaman presented Union Budget 2020 in Parliament on 1^st Feb 2020. In this Finance Act 2020 she proposed various changes in direct and indirect taxes. One of the key changes is insertion of new section 194-O (Payment of certain sums by e-commerce operator to e-commerce participant) in income tax act.  In this section (TDS on E-commerce operators) government has imposed an liability on e commerce operator to deduct TDS at 1% on the gross value of the sale of services or goods or both facilitated through e commerce platform. Key highlights of section 194 O is presented below :

Section 194-O of income tax act 1961 (effective from 1 October 2020): TDS on E-commerce operators

(1) Notwithstanding anything to the contrary contained in any of the provisions of Part B of this Chapter, where sale of goods or provision of services of an e-commerce participant is facilitated by an e-commerce operator through its digital or electronic facility or platform (by whatever name called), such e-commerce operator shall, at the time of credit of amount of sale or services or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier, deduct income-tax at the rate of one per cent of the gross amount of such sales or services or both.

Explanation.––For the purposes of this sub-section, any payment made by a purchaser of goods or recipient of services directly to an e-commerce participant for the sale of goods or provision of services or both, facilitated by an e-commerce operator, shall be deemed to be the amount credited or paid by the e-commerce operator to the e-commerce participant and shall be included in the gross amount of such sale or services for the purpose of deduction of income-tax under this subsection.

(2) No deduction under sub-section (1) shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of an e-commerce participant, being an individual or Hindu undivided family, where the gross amount of such sale or services or both during the previous year does not exceed five lakh rupees and such e-commerce participant has furnished his Permanent Account Number or Aadhaar number to the e-commerce operator.

(3) Notwithstanding anything contained in Part B of this Chapter, a transaction in respect of which tax has been deducted by the e-commerce operator under sub-section (1), or which is not liable to deduction under sub-section (2), shall not be liable to tax deduction at source under any other provision of this Chapter

Provided that the provisions of this sub-section shall not apply to any amount or aggregate of amounts received or receivable by an e-commerce operator for hosting advertisements or providing any other services which are not in connection with the sale or services referred to in sub-section (1)

Explanation.––For the purposes of this section,––

(a) “electronic commerce” means the supply of goods or services or both, including digital products, over digital or electronic network;

(b) “e-commerce operator” means a person who owns, operates or manages digital or electronic facility or platform for electronic commerce and is responsible for paying to e-commerce participant; (c) “e-commerce participant” means a person resident in India selling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce;

(d) “Services” includes ‘fees for technical services’ and fees for ‘professional services’, as defined in the Explanation to section 194J’.

Let’s understand the section in easy way by dividing the section in following headings:

1. Who is required to deduct TDS on e-commerce operator
2. When required to deduct TDS on payment to e-commerce operator
3. What is rate of TDS on payment to e-commerce operator
4. On what value

Who is required to deduct TDS:-  Every e-commerce operator is required to deduct TDS. Here e commerce operator means every person who facilitates sale of goods or provision of services through its digital or electronic facility or platform.

When required to deduct TDS:– E-commerce operator is required to deduct tax at the time of credit of amount of sale or service or both to the account of e-commerce participant or at the time of payment thereof to such participant by any mode, whichever is earlier. Any payment made by a purchaser of goods or recipient of services directly to an e-commerce participant shall be deemed to be amount credited or paid by the e-commerce operator to the e-commerce participant and shall be included in the gross amount of such sales or services for the purpose of deduction of income-tax.

What is rate of TDS (on E-commerce Operator) and value:- 1% of the gross value of the sale of goods and provision of services (including Shipping Charges) made though its e commerce platform. TDS rate will be 5% for cases where PAN/Aadhaar not provided by e-commerce participant to e commerce operator.

Example of TDS on E-commerce Operator:

Buyer A placed an order of phone on Flilkart (E-commerce operator), price of phone was INR 10,000 and 200 were shipping charges.  In this case Flilkart will deduct Tax Deduction at Source (TDS) of INR 102 (1% of 10,200) from the amount payable to seller of phone (e-commerce participant).