New Section 194O of income tax act | TDS on E-Commerce Operators and Participants | Corpbiz

#E_CommerceOperatorsandParticipants #NewSection194O #Corpbiz

Meaning of E-Commerce Operators and Participants -
#E_CommerceOperator: An e-Commerce operator is a person who owns, operates, or manages a digital/electronic facility for the sale of goods and services. He is responsible for making payments to the e-Commerce participant on such sales.
#E_CommerceParticipant: An e-Commerce participant is a person who sells goods, services, or both through an electronic facility provided by an e-Commerce operator. He must be a resident of India.

Scope of #Section194O -
E-Commerce operators should deduct TDS @1% at the time of credit of the amount of sale of goods, services, or both to the account of an e-commerce participant or at the time of making payment to an e-Commerce participant by any other mode, whichever is earlier.
E-commerce participant being a resident individual or #HUF: #E_Commerce operator is not required to deduct #TDS if the gross amount of sale of goods, services, or both during the previous year does not exceed Rs 5 lakh and if the e-Commerce participant has furnished his #PAN or #Aadhaar.
If the e-Commerce participant does not furnish his PAN or Aadhaar, TDS must be deducted at the rate of 5%, as per provisions of #Section206AA.
E-Commerce participant being a non-resident: As stated earlier, an e-Commerce participant must be a resident of India. Thus, no TDS will be deducted if the participant is a non-resident.
For example, a proprietary firm XYZ (e-commerce participant) is selling its products through Amazon (e-commerce operator). Mr A buys this product online from XYZ for Rs 50,000 on 1 October 2020.
Amazon credits the account of XYZ on 1 October 2020, but the customer makes the payment directly to XYZ on 15 October 2020.
Here, #Amazon is required to deduct TDS @1% on Rs 50,000 at the time of credit to the party or making payment, whichever is earlier. In this case, TDS should be deducted on 1 October 2020.

Purpose of Section 194O -
The purpose of the introduction of Section 194O is to widen the TDS base by bringing e-Commerce participants under the #tax. Of late, customers prefer #digitalPlatforms for buying or selling of goods and services because:
From the sellers’ perspective: It requires less cost for creating the setup and less effort for the search of buyers.
From the buyers’ perspective: Many options are available at one platform and the comparison of products becomes very easy.
This has resulted in an increase in the number of e-Commerce users over a period of time. It is difficult to identify small sellers (e-Commerce participants) who don’t file their #incomeTaxReturns. Thus, the #government has enlarged the tax base to bring such e-Commerce participants under the tax base.

Exceptions to Section 194O, if any -
1. Non-resident e-Commerce participants are exempted from the scope of this section.
2. A ceiling limit of Rs 5 lakh is set only for resident individuals and HUF. Thus, an e-Commerce operator is not required to deduct TDS if the amount, paid or credited to individuals/HUF during a financial year, does not exceed Rs 5 lakh.

Earlier Provisions -

Earlier, there was no #taxDeduction on payments made to e-Commerce participants. They were required to independently file their income tax returns. Therefore, many small e-Commerce participants didn’t file their income tax returns and escaped the #taxLiability.

Conclusion -
The introduction of Section 194O will result in an increase in the revenue for the government by reducing tax evasion.

Clarification -
Non Applicability of Section 194-0 and 206C (1h) on
- Transactions in securities in commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation. ( Reason- No Direct Contact Between Buyer and Seller )
- Transactions in electricity, renewable energy certificates traded through power exchange.
- Payment gateways
- Insurance agent or insurance aggregators

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