Section 194O - TDS on e-Commerce Transactions

The Union Budget imposes a new tax on the e-commerce transaction to provide more clarity into the e-commerce sector. This inclusion is expected to lead a massive cash flow from the

e-commerce giants like Amazon and Flipkart with their corresponding sellers. The newly added section dealing with this is Section 194O and this article will explain the applicability and the coverage of this IT act.

General Terms

To understand the terms mentioned in Section 194O, the terms "e-Commerce, e-Commerce Operator and e-Commerce Participant" are explained as below:

Electronic Commerce – means by which the supply of goods or services or both, including digital products, over an electronic network or digitally. E-commerce Operator – The person who possesses, manages or oversees the digital or electronic feature or platform for electronic commerce in charge of paying to e-commerce member. E-commerce Participant – The Indian resident selling goods or providing services or both, including digital products, via electronic commerce or digitally. Services – This is set of formalities that to include fees for technical services and fees for professional services, as defined in Section 194J.

Applicability

The Section aims for a 1% TDS rate on the gross amount of sales of goods or services aided by e-commerce hands across the digital or electronic program to the applicants. The TDS rate of 1% applies either during the time of credit to e-commerce participants or payment by any mode or where the purchaser of goods or services makes payment directly to e-commerce participants. However, as per the Union Budget 2024, the TDS rate under Section 194O will be changed from 1% to 0.10%, effective from October 1, 2024. For any Individual with evident

PAN or Aadhaar during e-commerce transaction, no deduction required if the combined sale of goods lies within Rs.5 Lakhs during the FY. To prevent double deduction, with the payment provisions once covered and done under this section are not liable to TDS under any other provisions of the Act. But such exemption does not affect the amount collected by e-commerce operators on account of hosting any services that are not relevant to an e-commerce applicant. The following are the significant revisions are still in the making in the sections:

Section 197 offers a lower custody certificate that acquires for tax deduction under Section 194O
Section 206AA affords the possibility of tax deducted at the rate of 5% instead of 1% as specified in Section 194O, for those with no proof of PAN or the Aadhaar

The proposed amendment is applicable on resident and NRI e-commerce operators producing payments to resident e-commerce applicants in kith and kin to the sale of goods or services aided via digitally. The proposed amendment is said to be effective from 1 April 2020.

Impression on sellers - The Section aims for 1% TDS rate on the gross amount of sales of goods or services aided by e-commerce hands across the digital or electronic program to the applicants. The TDS rate of 1% applies either during the time of credit to e-commerce participants or payment by any mode or where the purchaser of goods or services makes payment directly to e-commerce participants. The sellers with sales below Rs.5 lakhs are liable for a hit in the economy, yet the system manages customer traceability electronic network. The TDS rate will be changed to 0.10% under Section 194O as per the proposed changes made in the Union Budget 2024. The newly added section can be read from the Finance Bill, 2020 (page 31) of the appended PDF below:

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Frequently Asked Questions

Common questions about Section 194O: TDS on E Commerce Transactions India.

Section 194O is a newly introduced provision under the Income Tax Act that requires e-commerce operators to deduct tax at source (TDS) at the rate of 1% (currently, proposed to be reduced to 0.1% from October 1, 2024) on the gross amount of sales or services facilitated through their digital platforms to resident e-commerce participants.

An e-commerce operator is a person who owns, operates, or manages a digital or electronic platform for facilitating the supply of goods or services, including digital products, and is responsible for paying the e-commerce participants.

An e-commerce participant is an Indian resident who sells goods or provides services, including digital products, through an electronic commerce platform.

Yes, there is an exemption limit. If an individual e-commerce participant with a valid PAN or Aadhaar has a gross sales or services amount of up to Rs. 5 lakhs in a financial year, no TDS is required to be deducted by the e-commerce operator.

No, the proposed amendment under Section 194O is applicable only to resident and NRI (Non-Resident Indian) e-commerce operators making payments to resident e-commerce participants in relation to the sale of goods or services facilitated through digital platforms.

The proposed amendment to Section 194O was introduced in the Finance Bill 2020 and is effective from April 1, 2020.

Section 194O provides that once TDS has been deducted under this section, the amount will not be subject to TDS under any other provisions of the Income Tax Act. However, this exemption does not apply to amounts received by the e-commerce operator for services unrelated to e-commerce participants.

Yes, Section 197 allows e-commerce participants to obtain a lower deduction certificate for TDS under Section 194O.

If an e-commerce participant does not provide a PAN or Aadhaar, Section 206AA provides for a higher TDS rate of 5% instead of the standard 1% rate specified in Section 194O.

The introduction of Section 194O aims to improve traceability of e-commerce transactions and ensure tax compliance. While sellers with sales below Rs. 5 lakhs are exempt from TDS, the 1% TDS rate (proposed to be reduced to 0.1%) on gross sales or services may impact the cash flow of e-commerce sellers, especially larger ones like those operating on Amazon and Flipkart.