Here we will discuss amendment made in Section 194J in Finance Act 2020 as per Budget Announced on 1 Feb 2020
These changes are applicable from Financial Year 2020-21(Assessment Year 2021-22)

 

What is Section 194O?

As per Section 194O

TDS is to be deducted by e commerce operator from e commerce participants @ 1% on payment of amount greater than 5 lacs

This Section is introduced in Finance Act 2020 and is applicable from 1 April 2020 onward

 

Section 194O Summary

  • Section - 194O
  • Rate - 1%
  • If no Pan - 5%
  • Cutoff - 500000
  • Applicable from - 1 st April 2020
  • Applicable on - 1 st April 2021

 

What is E Commerce Operator ?

E Commerce Operator means a  person who owns, operates or manages digital or electronic facility or platform for electronic commerce
and is responsible for paying to e-commerce participant. 

In easy language

it means companies like Flipkart, Amazon ,Snapdeals which sells goods of different vendors

It also includes companies like Swiggy, Zomato which sell food etc of different restaurants

 

What is E Commerce participant?

A person resident in India

Selling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce

In easy language

it means companies like Flipkart, Amazon, Snapdeals which sells goods of different vendors

It also includes companies like Swiggy, Zomato which sell food etc of different restaurants

 

What is Rate of TDS Under Section 194O?

TDS Rate is 1% on gross amount of sales

However if no pan number,TDS is to be deducted @ 5% and not 1%

 

What is meaning of Gross Amount?

Gross Amount means gross amount collected from customer

This amount is before deduction of TDS

 

Examples of 194O E commerce Transaction

Example 1-Current Scenario

Suppose a vendor sells goods through Amazon for 100000 to customer

In this Case Customer pays Amazon full 100000

Amazon deducts its commission (suppose 20000)

It pays balance 80000 to vendor

 

Example 2-After Deduction of TDS under Section 1940

Suppose a vendor sells goods through Amazon for 100000 to customer

In this Case Customer pays Amazon full 100000

Amazon deducts its commission (suppose 20000)

Also it will deduct TDS under Section 1940@ 1%

This 1% TDS will be deducted on 100000 and not 80000

Amazon will now pay 100000-20000-1000=79000 to vendor

 

Vendor can reduce this Income Tax from his tax liability

If no Tds Budget.png

 

Is TDS to be Deducted on Small Payments also

Cutoff is 5 lacs

No TDS is to be deducted if payments made during the year are upto 500000


Who is Deductor and Deductee in this case?

Deductor means person deducting TDS,It is the e-commerce operator Filpkart /Amazon

Deductee means person whose TDS is deducted,it is the e-commerce participant (vendor)

 

Who will fill TDS Challan and Return in this case

TDS Challan 281 will be filled by e-commerce operator

TDS Return 26Q will also be filled by e-commerce operator

 

How will Deductor issue TDS Certificate

E-commerce operator will download TDS Certificate Form 16A from TRACES Website and provide it to deductee

 

What is treatment of this TDS Deducted

Deductee (Vendor) has to collect TDS Certificate from his vendor

He can reduce this TDS from his Income Tax Liability


Is TDS Deducted on Non Residents also?

No

E Commerce participant means a person resident in India

 

Can Certificate of Lower Deduction be taken under Section 197

Deductee (Vendor) can take Certificate of lower deduction from Income Tax Department

In this case,Flipkart/Amazon will deduct TDS at lower rate (as mentioned in certificate)

 

Extract of Finance Act 2020 Regarding New Section 194O (Bare Act)

 

Sub-section (1) of the said section provides that notwithstanding anything to the contrary contained in any of he provisions of Part B of this Chapter, where sale of goods
or provision of services of an e-commerce participant is facilitated by an e-commerce operator through its digital of electronic facility or platform (by whatever name called),
such e-commerce operator shall, at the time of credit of amount of sale or services or both to the account of an ecommerce participant or at the time of payment thereof to
such e-commerce participant by any mode, whichever is earlier, deduct income-tax at the rate of one per cent. of the gross amount of such sales or services or both. It is further
clarified that any payment made by a purchaser of goods or recipient of service directly to an e-commerce participant for sale of goods or provision of services or both, facilitated by
an e-commerce operator, shall be deemed to be amount credited or paid by the e-commerce operator to the ecommerce participant and shall be included in the gross
amount of such sales or services for the purpose of deduction of income-tax under the said sub-section.

Sub-section (2) of the said section provides that no deduction under sub-section (1) shall be made from any sum credited or paid or likely to be credited or paid during the
previous year to the account of an e-commerce participant, being an individual or Hindu undivided family, where the
gross amount of such sales or services or both during the previous year does not exceed ten lakh rupees and the ecommerce participant has furnished his Permanent Account
Number or Aadhaar number to the e-commerce operator.

Sub-section (3) of the said section provides that notwithstanding anything contained in Part B of this Chapter
a transaction in respect of which tax has been deducted by the e-commerce operator under sub-section (1), or is not liable to deduction under sub-section (2), shall not be liable
to tax deduction at source under any other provision of Part B of this Chapter. It is further proposed to exclude the
application of the said sub-section to any amount or aggregate of amounts received or receivable by an ecommerce operator for hosting advertisements or providing
any other services which are not in connection with the sale of goods or services referred to in sub-section (1).
The said section also provides for the definitions of the expressions “electronic commerce”, “e-commerce operator”,
“e-commerce participant” and “service”. This amendment will take effect from 1st April, 2020

  1. Tax Practical
  2. Practical TDS (Non Salary)

About the Author

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CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 10 years. He also provides Accounts Tax GST Training in Delhi and Pune.