The Union Budget 2020 has introduced Section 194O to the Income Tax Act, 1961. As per the provisions of this section, e-commerce operators can deduct TDS (Tax Deducted at Source) for providing any service or conducting the sale of goods via e-commerce participants. It is in force from October 1, 2020.
Keep reading to know how this section works!
Section 194O involves the following two parties:
An e-commerce participant refers to an individual who engages in the sale of services, goods or both via an electronic facility that an e-commerce operator provides.
An e-commerce operator refers to an individual who manages, operates and owns an electronic or a digital facility to conduct the sale of services and goods.
Scope of Section 194O
An e-commerce operator must deduct TDS at the rate of 1% during the credit of the sale amount (can be the sale of services, goods or both) to an e-commerce participant’s account or while making payment (through other modes) to the e-commerce participant, whichever is earlier.
Here are some of the different instances and the respective TDS deduction that would occur as per Section 194O:
An e-commerce operator need not subtract TDS if an e-commerce participant has provided his/her Aadhaar or PAN details and the gross sale amount in the last year doesn’t go above Rs. 5,00,000.
TDS deduction is not applicable for non-resident participants. An e-commerce participant should be a resident individual.
Also Read: How To Use Challan 280 To File Income Tax?
Following are the exceptions applicable to this section:
Understand the mechanism of TDS deduction as per this section through the following example:
Suppose Rajiv is an e-commerce seller of an eminent e-commerce operator. The details of his sales are as follows:
Gross sales = Rs. 6,00,000
The e-commerce operator’s commission stands at 2.90%, amounting to Rs. 17,400.
18% GST in the sales amounts to Rs. 108,000.
Therefore, TDS = 1% x Rs. 6,00,000 = Rs. 6,000. Now, his e-commerce operator needs to:
If Rajiv doesn’t furnish his Aadhaar or PAN details, then TDS must be subtracted at the rate of 5% regardless of the amount of gross sales.
Prior to the introduction of Section 194O of the Income Tax Act, there was no TDS deduction for the payments towards the e-commerce participants. Further, they had to place their income tax returns individually. As a result, several minor e-commerce participants evaded taxes and didn’t publish their tax returns.
Previously, it was not clear how much the sellers of goods or service providers earn through digital platforms. So, the reason to launch this new section is to include the e-commerce participants under the scope of taxation.
At present, consumers prefer online platforms for selling or buying services and goods because:
It was quite challenging for the government to recognise small e-commerce sellers who did not file ITRs correctly. Hence, the Government of India has expanded its tax base to include e-commerce participants.
Also Read: How To Calculate Income Tax In Excel?
Section 194O of the Income Tax Act helps minimise tax evasion and increase the government’s revenue. If you are planning to sell goods or services through an e-commerce platform, make sure that you are aware of the provisions of Section 194O.
1. How do I claim TDS deducted by e-commerce?
An e-commerce operator will issue a form, namely Form 16A, to an e-commerce participant. The seller can use this form to claim the credit of TDS at the time of filing his/her income tax returns.
2. What is LDC for TDS under Section 194O?
If your income tax liability for a year is lower than the TDS applicable on a specific source of income, you can ask for lowering the TDS rate. For this you have to apply for a LDC via Form 13 to the Assessing Officer.
3. At what rate does TDS has to be deducted u/s 194O?
Under Section 194O, an e-commerce operator will deduct TDS @1% on the gross sales. In case a deductee has failed to furnish his/her Aadhaar or PAN details, the rate of TDS deduction will be 5% regardless of gross sales amount.
4. Under what circumstances TDS u/s 194O is not deductible?
E-commerce sellers (resident HUFs or resident individuals) whose total sales do not exceed Rs. 5 lakh are exempted from the TDS deduction. However, they should have provided the Aadhaar or PAN details to their e-commerce operators. Additionally, non-resident sellers are not covered under this section.
5. Are there any penalties under Section 194O?
If an e-commerce operator doesn’t pay and file TDS, the following penalties will be applicable:
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
|Section 112A||Section 50||Section 245|
|Section 80QQB||Section 32AD||Section 250|
|Section 35D||Section 143 (1a)||Section 115BAB|
|Section 143||Section 79||Section 140A|
|Section 17(2)||Section 3||Section 94A|
|Section 147||Section 80||Section 40A|
|Section 48||Section 115AD||Section 14A|
|Section 45||Section 285BA||Section 6|
|Section 36||Section 87A||Section 80GGA|
|Section 244A||Section 234E||Section 28|
|Section 197||Sectio 548||Section 194J(1)(ba)|
|Section 145A||Section 80P||Section 92CD|
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