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

In recent years, there has been a significant surge in e-commerce sales, with more and more sellers opting to sell goods and services through online platforms. As a result, it has become crucial for these sellers to comply with tax regulations and ensure that they pay taxes on their income. To facilitate this process, the Income Tax Act introduced Section 194O, which mandates the deduction of Tax Deducted at Source (TDS) on e-commerce sales. In this comprehensive guide, we will delve into the intricacies of Section 194O, exploring its provisions, applicability, rates, and more.

What is Section 194O?

Section 194O was introduced under the Budget 2020 as a measure to ensure the collection of taxes on e-commerce sales. It makes it mandatory for e-commerce operators to deduct TDS from the payments made to e-commerce sellers, who are individuals or Hindu Undivided Families (HUFs) if the gross amount of sales exceeds INR 5,00,000 in a financial year. This provision came into effect on 1st October 2020.

The primary objective of Section 194O is to shift the responsibility of tax deductions from the seller to the e-commerce operator. By doing so, the government aims to streamline the tax collection process and ensure compliance in the fast-growing e-commerce sector.

Who is the Deductor?

The deductor under Section 194O is the e-commerce operator who owns, manages, and operates the digital platform through which goods and services are sold online. The e-commerce operator is responsible for deducting TDS from the payments made to e-commerce sellers and depositing it with the income tax department. Additionally, the deductor is required to file a TDS return in Form 26Q to report the details of the deductee payments.

Who is the Deductee?

The deductee under Section 194O is the e-commerce participant or seller who sells goods and services on the e-commerce platform. The deductee can be an individual or a HUF resident in India. For non-resident e-commerce sellers, TDS must be deducted under Section 195 at the prescribed rates. The deductee will receive the payment from the e-commerce operator after the deduction of TDS under Section 194O.

Nature of Payment

Under Section 194O, the e-commerce operator is required to deduct TDS on the gross sales of goods or services made by the e-commerce seller. The gross sales include the Goods and Services Tax (GST) and the commission charged by the e-commerce operator. It is important to note that if a buyer makes a direct payment to the e-commerce seller, it is presumed that the e-commerce operator made the payment. The amount is included in the gross sales for TDS deduction purposes.

Time of Payment

TDS under Section 194O should be deducted at the time of credit of the amount to the account of the e-commerce participant or at the time of payment, whichever is earlier. This means that the e-commerce operator should deduct TDS when the payment is credited to the seller's account or when the actual payment is made, depending on which event occurs first.

Rate of TDS under Section 194O

The rate of TDS under Section 194O varies based on the status of the deductee and the amount of gross sales. If the deductee is a resident individual or HUF and the gross sales exceed INR 5,00,000 in the financial year, TDS should be deducted at a rate of 1% on the gross sales. For any other deductee, regardless of the amount of gross sales, TDS should be deducted at a rate of 1%. However, if the deductee fails to provide their PAN or Aadhaar, TDS should be deducted at a higher rate of 5% irrespective of the gross sales amount.

TDS Certificate

The deductor is responsible for issuing Form 16A to the deductee as a Tax Credit Certificate for the amount deducted as TDS under Section 194O. The deductee can use Form 16A to claim credit for the tax deducted while filing their Income Tax Return.

TDS Return

After deducting TDS under Section 194O, the deductor should deposit the TDS amount with the income tax department. Additionally, the deductor should file a TDS Return in Form 26Q on the TRACES platform to report the details of the deductee payments. Once the TDS Return is filed, the deductor should provide Form 16A to the deductee.

Conclusion

 Section 194O plays a crucial role in the taxation of e-commerce sales by shifting the responsibility of TDS deduction to e-commerce operators. It ensures that taxes are collected on e-commerce transactions and promotes transparency and compliance in the digital economy. As an e-commerce participant, it is essential to understand the provisions of Section 194O, comply with the TDS requirements, and ensure proper reporting and documentation for a smooth tax filing process