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E-commerce gained huge popularity after the internet reform in India. And e-commerce widened its reach to billions of people across India. But e-commerce was not taxable under Income Tax Act until 2020. Section 194O was introduced in the union budget 2020 and came into effect from 1st Oct. 2020. The TDS base was enlarged and brought e-commerce under the Income Tax Act. Let us explain Section 194O in detail in this article.
According to Section 194O of income tax act, an E-commerce operator is responsible for deducting TDS at the rate of 1% of the gross amount credited to the seller's account or at the time of making payment, whichever is earlier. This applies to any transaction the e-commerce platform facilitates involving goods and services which includes professional and technical services.
The TDS must be deducted at the time of crediting the seller's account, irrespective of the mode of payment. Section 194O under the Financial Act 2020 imposes taxes on the e-commerce platform, which was not done before.
E-commerce operators: e-commerce operators own the digital facility to provide goods and services on their platform; e-commerce operators are responsible for managing and maintaining the owned digital platform.He is responsible for making payments to the e-Commerce participant on such sales
E-commerce participants: e-commerce participants register on the digital platform owned by the e-commerce operators and use the platform to sell goods and services. E-commerce participants must be residents of India.
Section 194O of income tax act aims to expand the TDS scope by taxing e-Commerce participants. In recent times, digital platforms have become more popular for purchasing or selling goods and services because sellers can save on the setup cost and the effort of reaching the buyers.
Buyers have plenty of choices in one place and can easily compare products.
This has led to a growth in e-Commerce users over time. It is difficult to track small sellers (e-Commerce participants) who do not file their income tax returns. i.e., the government has broadened the TDS base to include e-Commerce participants under Income Tax Act.
After the introduction of Section 194O of income tax act, effective from 0ct 2020, the e-commerce operators are responsible for deducting TDS before making payments to the participants.
If any participants fail to furnish their PAN are liable for TDS, if the gross sale amount exceeds ₹ 5 lakh, and the rate of TDS will be 5% as per section 206AA.
If an e-commerce operator sells goods, services, or both to an e-commerce participant, they have to deduct TDS at 1% when they credit the sale amount to the participant's account or when they pay the participant in any other way, whichever is earliest.
Exceptions to Section 194O, if any
The exempted limit under section 194O is Rs. 5 Lakh if the amount is paid to an individual or the Hindu Undivided Family (HUF), i.e., the e-commerce operator will no longer be required to deduct the tax deduction at source.
Non-resident participants of e-commerce are also exempted from this section.
TDS was not applicable before the introduction of section 194O; e-commerce participants were required to file ITR separately. Therefore, many small e-Commerce participants didn’t file their income tax returns and escaped the tax liability.
E-commerce operators are required to file ITR with Form 26Q and Form 16A issued to the e-commerce participant; he can then claim TDS under section 194O of income tax act.
