Section 194O : TDS on E-Commerce Sales

What is Section 194O?

Under Budget 2020, a new TDS section 194-O 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 important 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 is applicable from 1st October 2020.

As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 5%
Tip
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 5%

Let us understand Section 194O in detail

Deductor

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.

Deductee

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 resident 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 includes GST and commission charged by the e-commerce operator.
Further, If the buyer of goods or services has made a direct payment to the e-commerce seller, it shall be deemed that the payment has been made by the e-commerce operator and the amount shall be included in the Gross Sales on which TDS is required to 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

If the Deductee is a resident Individual or HUF 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.

TDS Certificate

Deductor shall issue Form 16A to the deductee as the Tax Credit Certificate of the amount deducted as TDS. Using Form 16A, the deductee can claim credit of the tax deducted while filing Income Tax Return

TDS Return

After depositing TDS with the income tax department, the deductor should file Form 26Q on TRACES to report details of dividend payment. Once the return is filed, the deductor should provide Form 16A to the deductee

Example 1

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 payment to Rahul of Rs. 20,000 (including GST)

Solution

  • 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 exceeds 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 TDS of Rs. 6,100 with the Income Tax Department also file TDS Return Form 26Q
  • If Rahul has not provided PAN or Aadhar, then TDS should be deducted @ 5% irrespective of gross sales amount
As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%
Tip
As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%

Example 2

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 payment to ABC Private Limited of Rs. 20,000 (including GST)

Solution

  • 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 TDS of Rs. 1,380 with the Income Tax Department and file TDS Return Form 26Q
  • If ABC Private Limited has not provided PAN, then TDS should be deducted @ 5%
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FAQs

When is TDS under Sec 194O not required to be deducted by the E-Commerce Operator?

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

Is E-Commerce Operator required to deduct TDS on payment to Non-Resident E-Commerce Seller?

The definition of 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.

Whether the TDS is to be deducted for Non-Resident selling well through e-Commerce Portal u/s 194O?

E-commerce Participant is defined 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. And thus No TDS is required to be deducted when Participant is Non Resident.

When is Compulsory Registration under GST required?

GST Registration means the allotment of a unique GST Number or GSTIN to a taxpayer who is liable to collect and pay tax to the government after claiming the credit of the taxes paid on purchases. Generally, the GST registration is compulsory only if the Aggregate Turnover of a business exceeds the threshold limit during the financial year. However, in certain cases, compulsory registration under GST is required even if the turnover is less than the prescribed threshold limit. A taxpayer can apply for GST Registration on the GST Portal.

Who needs Compulsory Registration under GST?

1. Inter-state sale of Taxable Goods – Compulsory Registration

Inter-state supply means sales of goods outside the state of registration.

Description Whether GST Registration required?
Inter-state sale of taxable goods Compulsory registration irrespective of turnover
Inter-state sale of taxable services, exempt goods or services, nil-rated goods or services, etc

Compulsory registration only if the turnover exceeds the prescribed threshold limit for each state. Refer to the threshold limit for goods and services in the table below

StateUp to 31/03/201901/02/2019 to 31/03/2019From 01/04/2019
Manipur, Mizoram, Nagaland, Tripura10 lacs10 lacs10 lacs
Uttarakhand, Assam, Meghalaya, Sikkim, Arunachal Pradesh10 lacs20 lacs20 lacs
Himachal Pradesh10 lacs20 lacs40 lacs
Jammu and Kashmir20 lacs20 lacs40 lacs
Puducherry, Telangana20 lacs20 lacs20 lacs
Other States20 lacs20 lacs40 lacs
StateUp to 31/03/201901/02/2019 to 31/03/2019From 01/04/2019
Manipur, Mizoram, Nagaland, Tripura10 lacs10 lacs10 lacs
Uttarakhand, Assam, Meghalaya, Sikkim, Arunachal Pradesh, Himachal Pradesh10 lacs20 lacs20 lacs
Other States20 lacs20 lacs20 lacs

2. E-Commerce Operators or TCS Collectors – Compulsory Registration

An e-commerce operator is a person who owns and manages a digital platform for an e-commerce business i.e. buy and sell goods or services over a digital network. The e-commerce operator is also called a TCS collector since he is liable to collect TCS (Tax Collected at Source) before making payments to the e-commerce suppliers. Thus, such persons should take a compulsory GST registration irrespective of the turnover.

3. E-Commerce Supplier of Goods – Compulsory Registration

An e-commerce supplier is a person who sells goods or services online through an e-commerce platform managed by an e-commerce operator.

Description Whether GST Registration required?
E-commerce supplier of goods Compulsory registration irrespective of turnover
E-commerce supplier of services Compulsory registration only if the turnover exceeds the prescribed threshold limit for each state. Refer to the threshold limit for goods and services in the table below
StateUp to 31/03/201901/02/2019 to 31/03/2019From 01/04/2019
Manipur, Mizoram, Nagaland, Tripura10 lacs10 lacs10 lacs
Uttarakhand, Assam, Meghalaya, Sikkim, Arunachal Pradesh10 lacs20 lacs20 lacs
Himachal Pradesh10 lacs20 lacs40 lacs
Jammu and Kashmir20 lacs20 lacs40 lacs
Puducherry, Telangana20 lacs20 lacs20 lacs
Other States20 lacs20 lacs40 lacs
StateUp to 31/03/201901/02/2019 to 31/03/2019From 01/04/2019
Manipur, Mizoram, Nagaland, Tripura10 lacs10 lacs10 lacs
Uttarakhand, Assam, Meghalaya, Sikkim, Arunachal Pradesh, Himachal Pradesh10 lacs20 lacs20 lacs
Other States20 lacs20 lacs20 lacs

4. NRTP – Non-Resident Taxable Person

An NRTP must take a compulsory registration. It means a person:

  • who is a non-resident in India,
  • has no fixed place of business in India and
  • sells goods or services in India as a principal or an agent.

5. CTP – Casual Taxable Person

A CTP must take a compulsory registration. It means a person:

  • who sells goods or services in India as a principal or an agent,
  • he has no fixed place of business in the state from which he sells goods or services.

6. ISD – Input Service Distributor

An ISD must take a compulsory registration. It means the head office:

  • which receives tax invoices for input services used by all its branches,
  • which issues tax invoices to its branches to distribute credit of tax paid on the input services.

7. Agent

An agent is a person who sells goods or services on behalf of another person i.e. principal. Further, it includes a commission agent, factor, broker etc. As per the GST Act, an agent must take compulsory registration under GST.

What is the impact of GST on a commission agent?
The value of service provided by a commission agent is taxable and not the amount of reimbursement claimed from principal. Know more about provisions of registration, returns, invoicing, rate etc applicable to a commission agent
Read Answer
What is the impact of GST on a commission agent?
The value of service provided by a commission agent is taxable and not the amount of reimbursement claimed from principal. Know more about provisions of registration, returns, invoicing, rate etc applicable to a commission agent
Read Answer

8. OIDAR Service Provider

OIDAR i.e. Online Information Database Access and Retrieval Services. When services are supplied online over the internet without a physical interface between the seller and buyer, compulsory registration must be taken by the seller.

9. TDS Deductor

TDS Deductor must take a compulsory registration under GST. A certain category of persons such as government department, local authority, government agency etc is required to deduct tax:

  • At the rate of 2%,
  • On making payment to the supplier of goods or services,
  • If the invoice value exceeds Rs.2.5 lacs.

10. RCM – Reverse Charge Mechanism

The buyer of goods or services is required to pay tax under provisions of the reverse charge mechanism.

FAQs

When is GST registration compulsory?

The GST registration is compulsory only if the aggregate turnover of a business exceeds the prescribed threshold limit for sale of goods and services during the financial year. However, in certain cases, compulsory registration under GST is required even if the turnover is less than the prescribed threshold limit.

Who is required to register under GST?

Following are the people required to register under GST:

1. Inter-state suppliers of Taxable Goods
2. E-Commerce Operators or TCS Collectors
3. E-Commerce Supplier of Goods
4. Non-Resident Taxable Person i.e. NRTP
5. Casual Taxable Person i.e. CTP
6. Input Service Distributor i.e. ISD
7. Agent
8. OIDAR Service Provider
9. TDS Deductor
10. RCM i.e. Reverse Charge Mechanism

What is the GST Registration process?

Mentioned below is a brief process for GST Registration on the GST Portal:

1. Under New Registration on GST Portal, enter the basic details
2. You will see a GSTIN/ UIN / Provisional ID
3. Verify using OTP (One-time Password)
4. You will receive a TRN (Temporary Registration Number)
5. Verify the TRN by OTP Verification
6. Enter the relevant details and Upload the documents
7. Verify your application
8. Submit

What is TCS under GST?

TCS under GST i.e. Tax Collected at Source became applicable from 1st October 2018. Here is a brief explanation on TCS:

  1. Provisions of TCS are applicable to e-commerce operators.
  2. E-commerce operator is any person who owns and operates a digital platform to run the e-commerce business.
  3. E-commerce suppliers are the persons selling their goods or services using the e-commerce portal.
  4. Payment received from customers for such goods or services is collected by the e-commerce operator.
  5. E-commerce operator is liable to collect TCS @1% on the payment made to e-commerce suppliers. Thus, In the case of Inter-State Sale, IGST should be charged at 1%. In case of Intra-State Sale, CGST (0.5%) and SGST (0.5%) should be charged.

Example – TCS GST

Mr.X is a registered supplier on Amazon India. He sells goods of Rs.50,000 online to Mr.Y through Amazon for which it charges a 2% commission. Amazon collects the payment from Mr.Y. How will the provisions of TCS be attracted in this case?

Solution

  • Amazon is the e-commerce operator, Mr.X is the e-commerce supplier and Mr.Y is the customer
  • Amazon would collect payment from Mr.Y, collect TCS and make the remaining payment to Mr.X
  • TCS @1% would be collected on Rs.50,000 i.e. the amount inclusive of GST charged on goods and Commission charged by Amazon
  • Amazon would deposit TCS of Rs.500 while filing its GST Return i.e. GSTR-8 on GST Portal
  • TCS credit would be populated in GSTR-2A of Mr.X and would be added to his e-cash ledger on the GST Portal

TCS provisions are not applicable if following services are provided by e-commerce platform:

  1. Housekeeping services like plumbing, carpenting etc
  2. Accommodation services by hotels, inns, clubs, guest house etc
  3. Passenger transportation services by radio-taxi, motor cab, motorcycle etc

FAQs

Is TCS under GST same as TCS under Income Tax?

No. TCS under GST and under Income Tax are different.

* TCS under Income Tax is collected by the seller from buyer on sale of specified goods at specified rates. Seller should file Form 27EQ on TRACES.
* TCS under GST should be collected by e-commerce operator from e-commerce seller on e-commerce sales at 1%. E-Commerce Operator should file GSTR-8 on GST Portal

In how many days should e-commerce operator deposit TCS with the GST Department?

The e-commerce operator should collect TCS from e-commerce supplier at 1%. TCS should be deposited with the GST Department on GST Portal within 10 days from the end of the month in which TCS was collected.

Impact of GST on E-Commerce Operator

As per the GST Act, an Electronic Commerce Operator i.e. E-Commerce Operator is a person who owns, operates and manages a digital or electronic platform for running an e-commerce business. Electronic Commerce i.e. E-Commerce means the supply of goods or services across an electronic or digital network. The impact of GST on e-commerce operator is summarised in the table below:

Provision   Impact
Conditions A person owns, operates or manages an e-commerce platform (e-commerce operator). Suppliers sell goods or services through the e-commerce platform (e-commerce supplier). Payment on sales is collected by the e-commerce operator.
Registration Compulsory Registration irrespective of the threshold limit of Rs.20 lacs (Rs.10 lacs for special category states)
Taxability Liable to collect TCS (Tax Collected at Source) on the payment made to e-commerce supplier
TCS Rate Inter-state supplies – IGST @ 1%Intra-state supplies – CGST @ 0.5% and SGST @ 0.5%
Payment of TCS Liable to deposit TCS with the GST department within 10 days from the end of the month in which the TCS was collected
GST Return GSTR-8 – to be filed on or before the 10th of the next month GSTR-9B – to be filed on or before 31st December of the next financial year

FAQs

Is it mandatory for e-commerce operator to obtain registration?

Yes. Threshold limit of Rs. 20 Lakh is not available to e-commerce operators and they would be liable to register under GST irrespective of the value of supply made by them.

Can an e-commerce operator avail the benefit of Composition Scheme under GST?

No. E-commerce operators cannot avail the benefit of Composition Scheme under GST. They must register as regular taxpayers, collect and deposit TCS and file GSTR-8 on GST Portal

Impact of GST on E-Commerce Seller

As per the GST Act, an Electronic Commerce Seller i.e. E-Commerce Seller is a person who makes the supply of goods or services through a digital or electronic platform owned and managed by an e-commerce operator. The impact of GST on e-commerce seller is summarised in the table below:

Provision Impact
Conditions 1.Person sell goods or services through the e-commerce platform owned and managed by e-commerce operator
2. Payment on sales is collected by the e-commerce operator
Registration 1. E-commerce seller of goods – Compulsory Registration irrespective of the turnover
2. E-commerce seller of services – Compulsory registration only if the turnover exceeds Rs.20 lacs (Rs.10 lacs for special category states)
Taxability Liable to charge GST on the goods or services sold to the customers at the applicable GST Rate
Tax Collected at Source (TCS) Receives payment from the e-commerce operator after deduction of TCS @1% on the value of goods or services sold through their platform
TCS Rate 1. Inter-state supplies – IGST @ 1%
2. Intra-state supplies – CGST @ 0.5% and SGST @ 0.5%
TCS Credit Can claim credit of TCS collected by the e-commerce operator by filing GST Return on the GST Portal
GST Return 1. GSTR-2A – auto-populated return that reflects the TCS credit. The TCS credit is added to the e-cash ledger on the GST Portal
2. GSTR-3B – file on or before 20th of next month for payment of GST charged on sales
3. GSTR-1 – file monthly or quarterly based on the turnover of sales
4. GSTR-9 – file on or before 31st December of the next financial year

FAQs

Is it mandatory for e-commerce seller to obtain registration?

* E-commerce seller of goods – Compulsory registration irrespective of turnover
* E-commerce seller of services – Compulsory registration only if turnover exceeds Rs.20 lacs (Rs.10 lacs for special category states)
[Notification no. 65/2017 dated 15.11.17]

Can an e-commerce seller avail the benefit of Composition Scheme under GST?

No. E-commerce seller cannot avail the benefit of Composition Scheme under GST. They must register as regular taxpayers, collect and deposit GST, file GSTR-3B and GSTR-1 on GST Portal.