Budget 2024 Updates
The TDS on certain payment of certain sums by e-commerce operator to e-commerce participent under Section 194O is proposed to be reduced from 1% to 0.1%, effective from October 1, 2024.
What is Section 194O of Income Tax Act?
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.
Who are e-commerce participants and operators?
- 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.
What is the purpose of section 194O?
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.
Who is accountable for deducting TDS under section 194O?
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.
What is the scope of section 194O?
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.
An E-commerce participant is a resident individual or HUF
- The e-commerce operator does not have to deduct TDS if the total sale amount of goods, services, or both in the last year is less than Rs 5 lakh and if the e-Commerce participant has given his PAN or Aadhaar.
If the e-Commerce participant has not given his PAN or Aadhaar, TDS will be deducted at 5%, as per Section 206AA.
E-Commerce participant is a non-resident
- An e-Commerce participant has to be a resident of India. So, no TDS will be applicable if the participant is a non-resident.
Exceptions to Section 194O, if any
- Non-resident e-Commerce participants are exempted from the scope of this section.
- 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/ credited to individuals/HUF during a financial year, does not exceed Rs 5 lakh.
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