Section 194O of Income Tax Act was mentioned and introduced in the Union budget for 2020. To support the sale of products or supply services via an E-commerce participant, an E-commerce operator is required to deduct TDS under section 194O. This article focuses on TDS on E Commerce, Section 194O Applicability and TDS on E Commerce under Section 194O.
According to Section 194O, when crediting an E-Commerce participant’s account the amount of sales of products or services, or both, or when making payment to an E-Commerce participant by any other means, whichever comes first, the operator of the E-Commerce site should deduct TDS at the rate of 1%.
If the gross value of goods, services, or both sold during the previous year does not exceed Rs 5 lakh and the e-Commerce participant has provided his PAN or Aadhaar Card, the e-commerce operator is not required to deduct TDS.
TDS (Tax Deducted at Source) shall be deducted at a rate of 5% if the e-Commerce participant does not provide his PAN (Permanent Account Number) or Aadhaar, according to Section 206AA.
An e-Commerce participant must be a resident of India, as previously indicated. As a result, if the participant is a non-resident, no TDS will be deducted.
For example, a private company ABC (e-commerce participant) sells their goods on Amazon (e-commerce operator). On October 1, 2020, Mr X purchases this merchandise from ABC for INR 45,000 online.
On October 1, 2020, Amazon credits ABC account, but the client pays ABC personally on October 15, 2020.
Amazon is required to deduct TDS of 1% on INR 45,000 at the time of crediting or paying the party, whichever comes first. TDS should be deducted on October 1, 2020 in this situation.
Section 194O’s goal is to broaden the TDS base by bringing e-commerce participants into the tax net. Customers nowadays prefer digital channels for buying and selling goods and services because:
This is the primary cause behind the recent rise in the number of e-commerce consumers. Small sellers that do not reveal their ITR (Income Tax Return) are difficult to find. As a result, the government has not expanded the tax base horizon to include such e-commerce participants.
The purpose of the new section is to bring e-commerce players into the tax net, i.e., to offer clarity on the income received by agents of goods or service suppliers via digital platforms. The section’s terms are as follows:
Section 194O contains below exceptions:
Any E-commerce operator who facilitates the sale of products or the provision of services to an E-commerce Participant using a digital or electronic facility or platform (by whatever name called).
Where an e-commerce participant is an individual or a HUF, and the gross amount of such sales or services, or both, during the previous year did not exceed five lakh rupees and the e-commerce participant provided the e-commerce operator with a PAN or Aadhaar Number, no TDS is to be deducted.
Previously, payments given to e-Commerce participants did not qualify for a tax deduction. They were required to file their tax returns on their own. As a result, many minor e-Commerce players failed to file their income tax returns, allowing them to avoid paying taxes.
The adoption of Section 194O will result in an increase in revenue for the government by reducing tax evasion. We hope that this post has helped you understand how TDS Section 194O will impact your e-commerce business. Subscribe to our weekly email to stay up to date on the latest tax developments and how they affect your business.
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