194O: TDS on Payments by e-commerce operators to e-commerce participants

[Parag Agarwal]

Section 194-O has inserted by Finance Act 2020 and shall be effective from October 1^st, 2020.

This section mandates an e-commerce operator to deduct tax at the rate of one percent from the payment being made to the e-commerce participants regarding the sale of goods or services or both being made by such participant on the digital or electronic facility/platform maintained by such e-commerce operator.

A synopsis is as under:

Deductor	E-commerce operator shall be liable to deduct tax. As per explanation (b), “e-commerce operator” means a person who owns, operates, or manages digital or electronic facility or platform for electronic commerce. As per explanation (a), “electronic commerce” means the supply of goods or services or both, including digital products, over digital or electronic network; (6) For the purposes of this section, e-commerce operator shall be deemed to be the person responsible for paying to e-commerce participant.	Ref. Sub Section (1)& (6)
Deductee	E-commerce participant shall be deductee. As per Explanation (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.	Ref. Sub Section (1)
Event	Section shall be attracted where the sale of goods or the provision of service or both is made by an e-commerce participant through the electronic or digital facility/platform maintained by an e-commerce operator.	Ref. Sub Section (1)
When to Deduct Tax	At the time of credit of the 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.	Ref. Sub Section (1)
Amount of Tax	One percent of the gross amount of sales of goods or services or both by such participant on the facility/platform maintained by such e-commerce operator. Explanation: 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 sub-section. Gross amount of sales shall not include the component of GST, if separately mentioned on the invoice (Circular No. 23/2017 dt. 19th July 2017)	Ref. Sub Section (1) & Circular No. 23/2017 dt. 19th July 2017
Exception	No deduction under 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.	Ref. Sub Section (2)
The overriding effect over other TDS Provisions	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 subsection 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).	Ref. Sub Section (3)
Removal of Difficulties	If any difficulty arises in giving effect to the provisions of this section, the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty. Every guideline issued by the Board shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the e-commerce operator.	Ref. Sub Section (4) & (5)
Amendment in section 206AA	In a case where tax is liable to be deducted under section 194-O, and the Participant does not furnish his PAN or Aadhar Number, the tax shall be deducted at an increased rate of 5%.	Section 206AA