Section 194O is a new addition to the TDS payment made in the 2020 union budget. And as per section 194O, all eCommerce operators need to deduct TDS for facilitating a service or a product via eCommerce participant. That implies; the sellers of goods/services on the eCommerce platform need to deduct TDS for offering services. And this new section 194O applies to eCommerce operators from 1st October 2020.
In brief about eCommerce participants and operators
The eCommerce operator is a person/an organization that manages that process of facilitating services/goods digitally. And an eCommerce operator makes payment to the participants on sales.
The participant in eCommerce are those who sell goods and services digitally. And as per the law, all the eCommerce participants of an eCommerce operator must be resident of India.
The opportunity of Section 194O
All the eCommerce operators shall deduct 1% TDS at the time of credit for the number of good sales. The deduction made at the time of credit must be on account of eCommerce participants while making any sort of payments. So, if the eCommerce participants receive any kind of payment after their product sell, the operators will hand them over the payment after deducting 1% TDS.
eCommerce participant as a Resident of India, or forming HUF
As per Section 194O, if any eCommerce participant is a resident of India, the operator is not required to deduct any TDS. However, the gross income from the sale is not increasing INR five lakhs in the previous years. However, in such cases, the eCommerce participant should also furnish their PAN and Aadhar details.
eCommerce participant as a non-resident
You already know that the eCommerce participant must be an Indian resident. So, if the participant is non-resident, no TDS will get deducted.
Resolution of Section 194O
The prime reason to bring the section 194O is to make the TDS base broader. By bringing the eCommerce participant under the tax system, the TDS base can become more robust. Another reason to bring TDS to eCommerce is more people nowadays are preferring online mode of purchasing goods. And it is mainly because:
1. It requires less cost to set up- from the seller’s point of view
2. Many options are available and within less cost- from a buyers point of view
So, this, as a result, developed the eCommerce platform. On the other hand, it is tedious to identify small sellers who are not filing their income tax returns due to eCommerce platforms. So, by introducing section 194O, the eCommerce participants are now also under the tax base.
Exceptions to section 194O
1. A non-resident of India as an eCommerce participant is exempted from section 194O
2. There is a maximum limit of INR 5 lakhs for Indian residents. If the annual sale doesn’t exceed the limit, no TDS will deduct.
Law before section 194O
Earlier, there were no certain laws for TDS deductions on eCommerce participants. All the participants need to file their tax returns on their own.
In conclusion, this is all about Section 194O. This new section will increase the revenue for the government by eliminating tax evasion.
Important: Please note that the information on this page / site is provided as general information for better understanding for the user and does not constitute tax, legal, or other professional advice and must not be used as such. Please consult your professional adviser(s) if you have any questions / doubts regarding the above.