What is Section 194O?
Under Budget 2020, a new TDS Section 194O of the Income Tax Act was introduced. With the increase in e-commerce sales, there has been a drastic increase in the number of sellers who sell goods and services through e-commerce platforms. It is essential that the sellers pay taxes on such income. Thus, Budget 2020 introduced a new section 194O to deduct TDS on e-commerce sales.
It is mandatory to deduct TDS u/s 194O by the e-Commerce operator on payments made to the e-Commerce seller (Individual/HUF) at the rate of 1% on the gross amount of sales if it exceeds INR 5,00,000 in a Financial Year. Section 194O of the Income Tax Act is applicable from 1st October 2020.
Let us understand Section 194O in detail
E-Commerce Operator is a person who owns, manages, and operates a digital platform for the sale of goods and services online. Therefore, e-Commerce Operators should deduct TDS on making payments to e-commerce sellers. Hence, the TDS should be deposited with the income tax department and a TDS Return should be filed.
E-Commerce Participant or E-Commerce Seller is a person resident in India who sells goods and services on an e-commerce platform. An E-Commerce Seller receiving payment for goods as well as services sold will receive the amount after the deduction of TDS under Sec 194O. E-Commerce Sellers, not residents in India making e-commerce sales will receive the amount after deduction of TDS under Sec 195
Nature of Payment
E-Commerce Operator is required to deduct TDS on the Gross Sales of goods or services. The Gross Sales include GST and commission charged by the e-commerce operator.
Additionally, if a buyer of products or services makes a direct payment to the e-commerce vendor, it is presumed that the e-commerce operator made the payment and the amount is included in the gross sales from which TDS must be deducted.
Time of Payment
TDS shall be deducted at the time of credit of the amount to the account of an e-commerce participant or at the time of payment, whichever is earlier.
Rate of TDS under Section 194O
If the Deductee is a resident Individual or HUF and also the Gross Sales exceed Rs. 5,00,000 in the financial year, deduct TDS u/s 194O at the rate of 1% on Gross Sales. In case of any other deductee, deduct TDS at the rate of 1% on Gross Sales irrespective of the number of gross sales.
If the deductee does not provide the PAN or Aadhar, then TDS shall be deducted at the rate of 5% irrespective of the gross sales amount.
Deductor shall issue Form 16A to the deductee as the Tax Credit Certificate of the amount deducted as TDS under section 194O. Using Form 16A, the deductee can claim credit for the tax deducted while filing an Income Tax Return
After depositing TDS with the income tax department, the deductor should file Form 26Q on TRACES to report details of the deductee payment. Once the return is filed, the deductor should provide Form 16A to the deductee
Rahul is a registered e-commerce seller on Amazon India. For May 2020, here are the details of his sales on Amazon:
- Total Sales = Rs. 5,90,000
- GST @ 18% included in the above sales = Rs. 90,000
- Commission @ 6% charged by Amazon included in above sales = Rs. 35,400
- Sales from Rahul to Rohan through Amazon. However, Rohan directly made a payment to Rahul of Rs. 20,000 (including GST)
- E-Commerce Operator – Amazon India
- E-Commerce Seller – Rahul
- Gross Sales = Rs. 5,90,000 + Rs. 20,000 = Rs. 6,10,000
- Since Gross Sales exceed Rs. 5,00,000 and Rahul is a resident Individual, Amazon India should deduct TDS @ 1% on Gross Sales before making payment to Rahul
- TDS = 1% of 6,10,000 = Rs. 6,100
- Payment to Rahul = 6,10,000 – 35,400 – 6,100 = Rs. 5,68,500
- Amazon would deposit a TDS of Rs. 6,100 with the Income Tax Department and will also file a TDS Return in Form 26Q
- If Rahul has not provided PAN or Aadhar, then TDS should be deducted @ 5% irrespective of the gross sales amount
ABC Private Limited is a registered E-commerce seller on Amazon India. For May 2020, additionally, here are the details of its sales on Amazon:
- Total Sales = Rs. 1,18,000
- GST @ 18% included in the above sales = Rs. 18,000
- Commission @ 6% charged by Amazon included in above sales = Rs. 7,080
- Sales from ABC Private Limited to Rohan through Amazon. However, Rohan directly made a payment to ABC Private Limited of Rs. 20,000 (including GST)
- E-Commerce Operator – Amazon India
- E-Commerce Seller – ABC Private Limited
- Gross Sales = Rs. 1,18,000 + Rs. 20,000 = Rs. 1,38,000
- Amazon India should deduct TDS @ 1% on Gross Sales before making payment to ABC Private Limited. TDS should be deducted irrespective of the sales amount
- TDS = 1% of 1,38,000 = Rs. 1,380
- Payment to ABC Private Limited = 1,38,000 – 7,080 – 1,380 = Rs. 1,29,540
- Amazon would deposit a TDS of Rs. 1,380 with the Income Tax Department and will file a TDS Return in Form 26Q
- If ABC Private Limited has not provided PAN, then TDS should be deducted @ 5%
E-Commerce Operator is not required to deduct TDS under Sec 194O if all the following conditions are satisfied:
> The E-Commerce Seller is a resident Individual or resident HUF and
Gross Sales do not exceed INR 5,00,000 and
> E-Commerce Seller has provided their PAN or Aadhaar to the e-commerce operator
The definition of an e-commerce participant as per Sec 194O includes a person resident in India. Thus, E-Commerce Operator is not required to deduct TDS on payment to a Non-Resident E-Commerce Seller under Sec 194O. However, TDS must be deducted under Section 195 as per the prescribed rates.
E-commerce Participant is defined as a person resident in India selling goods or providing services or both, including digital products, through a digital or electronic facility or platform for electronic commerce. And thus No TDS is required to be deducted when the Participant is Non-Resident.