Section 194O- TDS on Payments Made to E-commerce participants

Finance Act, 2020 inserted a new section 194-O in the Income-tax Act which mandates that with effect from 1st day of October 2020, an e-commerce operator shall deduct income-tax at the rate of one percent of the gross amount of sale of goods or provision of service or both, facilitated through its digital or electronic facility or platform. However, exemption from the said deduction has been provided in case of certain individuals or Hindu undivided families fulfilling specified conditions. This deduction is required to be made at the time of credit of the amount of such sale or service or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant, whichever is earlier.

What is an e-commerce service? 

Electronic commerce (e-commerce), or internet commerce, means buying and selling goods or services using the internet. Often, e-commerce is associated with the sale of physical goods online, but it describes any commercial transaction that is facilitated via digital or electronic networks. You may also be interested in learning on Internal Auditing and Management Consultancy in Kerala

E-commerce Operators

An e-Commerce operator is a person who owns, operates, or manages a digital/electronic facility for the sale of goods and services.

E-commerce Participant

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.

TDS rate under section 194O on e-commerce transactions

Under this section, TDS would be deducted by e-commerce operators at the rate of 1% (0.75% w.e.f. 14.05.2020 to 31.03.2021) or the rate of 5% (only for Non-PAN card cases).

 Exceptions under Section 194O IF AN

·       Non-resident e-commerce participants are excluded/exempted from the horizon of section 194O.

·       A threshold limit of Rs. 5 Lacs is mentioned for only resident individuals and HUF. Hence, an e-commerce operator does not need to deduct the TDS if the amount paid or credited to individuals or HUF during the financial year does not go beyond Rs. 5 Lacs.

Example of TDS deduction for an E-commerce Business

Let’s say ABC is a registered e-commerce seller on XYZ. Here are the details of sales.

Gross sales = Rs. 10,000

GST @ 18% included in the above sales = Rs. 1,526

ABC’S commission @ 10% (Rs. 10,000) = Rs. 1,000

TDS Calculation

E-Commerce Operator – XYZ

E-Commerce Seller – ABC

TDS = 1% of 10,000 = Rs. 100

XYZ is required to, 

deduct TDS of Rs. 100 at the time of credit fulfilment or making payment, whichever is earlier and file TDS return via Form 26Q & issue form 16A to ABC. 

 The seller can claim credit or refund for the TDS deducted by filing an income tax return for that financial year, as per their applicable due dates.

Law before Section 194O

Earlier, there was no tax deduction 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 tax liability.

Penalties Under Section 194O

1.    If the deductor (E-commerce platform) fails to file and pay the TDS, they will bear the following penalties.

2.    Interest at the rate of 1% per month or part thereof for non-deduction of TDS

3.    Interest at the rate of 1.5% per month or part thereof for non-payment of TDS by 7th of every month

4.    Rs 200/per day for non-filing of TDS return on a quarterly basis

TCS APPLICABILITY IN E-COMMERCE

The Central Government, on the recommendation of the GST Council (“Council”), has notified the operation of Tax Collected at Source provisions (“TCS Provisions”) on all e-commerce operators, except agents, with effect from October 1, 2018.

Under the GST Regime, on and from October 1, 2018, all e-commerce operators, except agents, shall be liable to deduct tax at source at the rate of 1% i.e. 0.5% CGST + 0.5% SGST, of the net value of intra-State taxable supplies made through it by other suppliers. The operators shall now collect a 1% TCS on every transaction executed online and thus, in order to collect this tax, registration in every state where its vendors are located becomes a mandate, irrespective of their turnover. It is important to note that compulsory registration, irrespective of turnover of e-commerce operators is also provided for under section 24(x) of the Act

EXAMPLE OF TCS COLLECTION IN ECO

ABC is a Chennai-based vendor, sells its products through an e-commerce platform say, XYZ. XYZ sells a product supplied by A, worth Rs. 1000 to a customer. XYZ must firstly be registered in Tamil Nadu as an e-commerce operator under the GST mechanism. Now, when it executes this sale transaction of Rs. 1,000/-, it must collect 1% of Rs. 1000 i.e. Rs. 10 as TCS.

IMPACT OF TCS IN ECO

ON THE E-COMMERCE OPERATORS

Not only India-based e-commerce operators but also the foreign operators acting as a platform for the sale of products from Indian suppliers/ vendors are liable to get themselves registered under the GST mechanism. For the operators, the imposition of the TCS provision just means more and more compliances and thus, increased costs. The cost will increase on account of an added monthly compliance and more prominently due to the requirement of a sound IT structure which must be able to deduct 1% of tax on every sales transaction that takes place. For a midsized operator, to install and maintain such sound infrastructure is a massive cost surge that could hamper his everyday working capital.

ON THE VENDORS

 By virtue of the applicability of the TCS provisions on the e-commerce operators, the vendors selling their products online, the government has taken another step towards ensuring the minimization of tax evasion.

These provisions have come has an added cost in compliance not only for the e-commerce operators, but also the suppliers/ vendors.

Today, with more and more vendors selling their products through e-commerce platforms, the imposition of such tax provisions ensures due payment of tax from the vendors. However, considering that the offline vendors are exempt from such provisions, this might also act as a discouragement to the vendors from selling their products through e-commerce platforms; thereby leading to more and more online vendors switching to the offline markets. Hence, from a wider perspective, it comes as a clash between the two of the most sought-after programs initiated by the Government i.e. digitization and minimization of tax evasion.

ON THE GOVERNMENT

In its drive to curb tax evasion, bringing in more vendors under the GST database comes as another step towards the goal. The Government shall witness a boost in its revenue.

PERSON NOT LIABLE FOR REGISTRATION

(1) The following person shall not be liable to registries namely: –

(a)  Any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under Central Goods and Service Tax act 2017 or under the intergraded good and service Tax Act.

(b) An agriculturist, to the extent of supply of produce out of cultivation of land

(2) The Government may, on the recommendation of the Council, by Notification”. Specify the category of person who may be exempted from obtaining registration under the Central Goods and Service Tax act 2017 (sub-section (2) of section 23)

In exercise of the powers conferred by sub-section (2) of section 23 of the central goods and services tax act, 2017 (12 of 2017). (hereafter in this notification referred to as the said act) The central government, on the recommendation of the council, hereby specifies the person making supplies of services, other than supplies specified under sub-section (5) of section 9 of the said act through an electronic commerce operator who is required to collect tax at source under section 52 of the said act, and having an aggregate  turnover, to be computed on all Indian basis, not exceeding an amount of 20 lack rupees in a financial year, as the category of persons exempted from obtaining registration under the said act

Applicability of the provisions  of sections 9(5) – As per notification No. 17/2017-CT (Tax) dated 28-6-2017

·       Service of transportation of passengers 

·       Service of providing accommodation in hotels, inn, campsites 

·       Homestay service or guest house service provided through e-commerce operator  

·       House-keeping like plumbing, carpentering, etc.

 Disclaimer

Please note that the contents of this document are solely for informational purposes. It does not constitute professional advice. Neither the authors accept any liabilities for any loss or damage of any kind arising out of any information in this document nor for any actions taken in reliance thereon.

Parpella can help you in your e-commerce business operations:

1.    TDS filing on monthly as well as QTR return for e-commerce operator

2.    GST filing support for both E-commerce operator and participant

3.    Income tax filing and consultation for both operator and participant

4.    Providing Form-16 respectively to the TDS return filing

5.    TCS filing

Business needs tend to change with markets and revenue scaling. We at Parpella are always available for all kinds of accounting solutions that could help your business ensure hassle-free operation at all times. Contact your Business and Company Registration Consultant in Kerala today.