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written by | April 27, 2022

Section 194O: The Ultimate Guide on TDS Payments for E-commerce Businesses

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Table of Content


Section 194O was revealed in the Union budget for 2020. An E-commerce operator must deduct TDS to facilitate any trade of goods or services through an E-commerce partner, as per section 194O.

 Did you know?

Section 194O TDS on e-commerce companies has only been effective after October 1, 2020.

Also Read: What Is Direct Tax, and What Are Its Different Types?

What is the TDS on E-commerce Payments?

According to Section 194O, The operator of an E-Commerce site should deduct TDS @1% when crediting to an E-Commerce participant's account the amount of sales of goods or services, or both, or when making payment to an E-Commerce participant by any other mode, whichever is earlier.  

The Ambit of Section 194O

Section 194O collects TDS at a percentage of 1% by the e-commerce provider when crediting an e-commerce participant's account for products, services or both, or when paying an e-commerce participant through other optional channels, whichever happens first.

If the E-commerce Participant Is an Indian Resident

  • If the total quantity of products and services sold in the past year was not more than ₹5 lakhs and the e-commerce participant provides their PAN card, the e-commerce provider doesn't require to withhold TDS.
  • The section deducts TDS at the cost of 5% if the e-commerce participant doesn't submit their PAN card, according to section 206AA rules.

If the E-commerce Participant Is a Non-Resident

  • An e-commerce partner must also be a citizen of India. As a result, if a participant is a non-resident, e-commerce is exempt from having to collect TDS. 
  • For instance, a private company named XYZ uses Amazon to sell its goods. On April 1, Mrs Kaur purchased the goods that XYZ offers digitally for  ₹30,000
  • On April 1, Amazon deposited XYZ's account, but Mrs Kaur paid XYZ personally on April 15. 
  • In this situation, Amazon must take TDS of 1% on  ₹30,000 either when crediting the participant or when making the payment, whichever comes sooner. The participant must collect TDS on April 1 in this situation.

The Objective of Section 194O 

  • Section 194O aims to extend the TDS foundation by putting e-commerce participants into the tax net. Consumers nowadays choose online platforms for buying and selling products and services since they are less expensive to set up and require less work in prospecting. 
  • From the buyer's perspective, many alternatives are available on a single forum, and the buyer can review the products swiftly.
  • This is the primary cause behind the current rise in e-commerce consumers. Modest vendors that do not reveal their ITR are challenging to find. As a result, the ministry has not expanded the tax base scope to include such e-commerce participants.

Exemptions Under Section 194O

These are certain exemptions under section 194O 

  • The provisions of section 194O do not apply to non-resident e-commerce participants. 
  • Only native people and Hindu Undivided Families are subject to a minimum ceiling of  ₹5 lakhs. As a result, if the money charged or paid to individuals or HUF in a fiscal year does not transcend  ₹5 lakhs, an e-commerce firm is exempt from deducting TDS.

Also Read: Types of GST in India - What is CGST, SGST and IGST?

Legal Condition Before Introduction of Section 194O

There was nothing about TDS on payments made to e-commerce partners before the government enacted section 194O, and it compelled them to file their ITRs on their own. As a result, several tiny e-commerce businesses failed to file their ITRs and avoided paying taxes.

After section 194O, the applicability of TDS on e-commerce payments is as follows:

The purpose of the new provision was to integrate e-commerce participants into the tax network's jurisdiction. For example, there is insufficient information on how much money online platforms make from sellers of goods and service providers.

Here are the provisions- 

  • E-commerce companies must give TDS for the convenience of selling products and services via their online platform or digital service. Another way, TDS acts as a payment intermediary between the supplier and the customer. 
  • The e-commerce company must deduct the TDS at the moment of transaction or credit, depending on which happens earlier. Credit is defined as a deposit to an e-commerce participant's account, while the payment is any other manner of transaction. 
  • This clause further states that if a purchaser of products and services has made the payment immediately or through an e-commerce partner, the e-commerce provider is presumed to have paid or credited the buyer's account. Consequently, the company can deduct it from the total sum for tax purposes.

Section 194O TDS Rate On E-commerce Financial Transactions

The e-commerce company must collect the TDS from providers at 1% or 5%, as per this clause. In general, the companies must collect the TDS at a rate of 1% in all cases, except for those wherein an e-commerce partner does not have PAN card details; in those cases, the appropriate rate is 5%.

Other E-Commerce Operations Provisions of Section 194O-TDS

All the other aspects of the TDS Legislation, such as those relating to TDS payment, reporting of TDS returns, regulations as to non-filing of returns, non-deduction or lesser deduction and non-payment after depreciation, shall remain in effect as indicated in the TDS Act's section. 

Some of the terms used in this portion of the post are below to help you understand it better.

  •  
  • An e-commerce provider is any individual that administers or manages an electronic or digital service or network for e-commerce and is also responsible for paying the sum to the e-commerce participant. 
  • Any individual who resides in India selling commodities, particularly digital items, offers services or perhaps both, utilising a digital infrastructure or network for e-commerce is considered an e-commerce participant. 
  • A resident is an individual who meets the definition of an Indian resident under Section 6 of the Income Tax Assessment act. 
  • The exemption is only available to residents and HUF up to a certain amount; nevertheless, TDS will be collected in the case of every resident person by the e-commerce operator regardless of the transaction value. So, it is quite difficult for an e-commerce provider to subtract TDS in the case of an individual or a HUF because an individual can offer his products on various platforms and request no payment of TDS until the overall sum exceeds the  ₹5 lakhs specified threshold. After all, the e-commerce operator is responsible for deducting TDS. 
  • As a result, in the days ahead, they must demand a proclamation from individuals related to the sale of goods and services on far more than one digital platform. It also tells that if the sum exceeds the threshold cap, the individual must inform him or begin withdrawing the TDS return from the beginning.

TDS Applicability in E-Commerce Operations Under Section 194O

Since October 1, 2020, the restrictions in this section have always been in effect for anyone transacting on the e-commerce network. The following are the rules for applicability: 

  • These requirements will only apply to e-commerce participants who are Indian citizens and are marketing products or providing service through an e-commerce channel; they will not apply to non-residents. 
  • Taking money for professional and technical assistance is referred to as service. 
  • There should be no further responsibility for TDS on a sale over which tax has been collected by the e-commerce provider under this section or would not be entitled to deduction due to the government's exemptions. This is to make it clear that TDS is not applied twice to the same transaction. However, the section states that such an exemption does not extend to any payment received. It also states the pay receivable by an e-commerce provider for running adverts or providing any other services which do not link to the sale of goods or services listed in this section's sub-section (1). 
  • Smaller deductions or no reduction of TDS and under the fulfilment requirements mentioned therein are in this section.

Penalties Under Section 194O

The penalties will apply if the deductor (e-commerce provider) fails to report and pay the TDS. 

  • Non-deduction of TDS will result in interest at 1% every month or a portion thereof. 
  • Non-payment of TDS by the 7th of every month would incur interest at 1.5% each month or a portion. Non-filing of TDS returns every quarter will incur interest in the amount of  ₹200 per day.

Conclusion

The adoption of Section 194O will increase income for the government by reducing tax avoidance. We hope that this post has helped you comprehend how TDS Section 194O might impact your e-commerce business.
Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.

FAQs

Q: What is the rate of TDS reduction?

Ans:

The e-commerce operators must deduct the TDS of 1% when crediting the money to an e-commerce participant or at the actual payment stage to that e-commerce participant by any means, whichever comes first. The individual should make the payment in exchange for products, services or even both. The company will calculate the TDS as 1% of the total sales amount.

Q: Who is an e-commerce participant/seller?

Ans:

Through an e-commerce operator, an e-commerce participant offers products or services on a digital platform.

Q: Who is an e-commerce operator?

Ans:

An e-commerce operator administers, manages or controls an electronic or digital network for electronic commerce, such as Flipkart or Amazon.

Q: What is an e-commerce service?

Ans:

Electronic commerce (e-commerce), often known as online commerce, refers to purchasing and selling products and services through the web. E-commerce is sometimes connected with the online selling of physical items, although it refers to any economic transaction via electronic or digital channels.

Q: What does TDS on e-commerce transactions mean?

Ans:

TDS on e-commerce activities is a percentage of gross sales that all e-commerce operators are obligated to deduct and submit to the government, as per section 194O.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.