The 2020 finance law established a new section 194-O which specifies the 1% levy on TDS payments made to e-commerce operators. Article 194-O is applicable when resident or non-resident e-commerce operators make payments on e-commerce platforms in connection with the sale of goods and services.
An e-commerce operator is defined as a person who owns, manages or operates a digital or electronic facility for the sale of goods and services. In addition, e-commerce operators are responsible for making payments to any e-commerce participant when selling these products or services. These products or services include the sale of digital goods and services such as podcasting, blogging, etc.
Who is excluded?
A threshold limit of Rs. 5 lakhs only applies to residents and Hindu Undivided Family (HUF). This means that an e-commerce operator does not need to deduct TDS if the amount (paid or credited) to individuals or HUFs during the financial year does not exceed Rs. 5 lakhs.
Non-resident e-commerce participants are excluded or exempt from section 194-O.
Scope of the TDS on Electronic Commerce under Section 194-O
Responsibility for payment of TDS rests with an escrow account between buyer and seller. In other words, TDS must be managed by e-commerce providers for the service of facilitating the sale of services or service goods provided by it through its facility or digital or automated platform.
Ecommerce providers are expected to deduct TDS during the credit or return period, whichever is faster.
In addition, this article provides that if a buyer of goods or services has obtained payment immediately to the ecommerce associate, it will be presumed that an adjustment has been made by the ecommerce manager or that the account has been debited by the e-commerce operator and the same will be calculated in the total amount for tax deduction.
If the e-commerce participant does not publish their Aadhaar or PAN card, the TDS must be deducted at the rate of 5 percent, in accordance with the provisions of Section 206AA.
What if the e-commerce participant is a non-resident?
Let’s take an example. An e-commerce company called Trader Ltd, sells its products through Amazon. Ms. Lina purchased this product online from Trader for Rs. 10,000 on April 1, 2020.
Amazon credits Trader’s account on April 1, 2020, but the client makes the payment directly to Trader on April 15, 2020.
Here, Amazon is required to deduct TDS @ 1% on Rs. 10,000 when crediting the party or making payment, whichever comes first. In such a scenario, TDS must be deducted on April 1, 2020.
Other provisions of article 194-O on electronic commerce transactions
All other provisions excluded from chapter TDS of the Law are applicable. This includes the submission of the TDS form, the provisions surrounding the payment of the TDS, other provisions relating to non-deduction or lower deduction / non-submission of report / non-payment after deduction would apply as indicated in the Law. The introduction of section 194-O would increase government revenue by minimizing tax evasion.