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TDS on E-commerce participants

A new section 194-O has been introduced in the Union Budget 2020. According to this section, an e-Commerce operator is required to deduct TDS for facilitating any sale of goods or providing services through an e-Commerce participant. This section is applicable from 1 October 2020.


E-Commerce operators should deduct TDS @1% at the time of credit of the amount of sale or at the time of making payment to an e-Commerce whichever is earlier. The provisions are made applicable for sale of goods as well as service, therefore services like food delivery, saloon service , repair service etc.. are covered

Further, the definition of e-commerce is not restricted to the sale of goods or services within India. This extends the scope of this provision to all e-commerce operators through whose platform Indian participants are selling their goods or services in different countries

It should be noted that the e-commerce participant should be a resident to be covered under this section. Whereas the e-commerce operator maybe resident or non-resident. Further, non resident e-commerce operators are already covered under the requirement of paying equalization levy

The government has widened the tax net by introducing TDS on e-Commerce participants. Therefore, smaller participants who were not filing their IT return earlier should now file IT returns to claim refund of TDS. However if the amount of sale during the previous year does not exceed Rs 5 lakh and if the e-Commerce participant has furnished his PAN or Aadhaar then e-commerce operator is not required to deduct TDS.

Various issues are expected to arise upon implementation of this provisions, mainly it is when the case where e-commerce operator does not handle customer payment, i,e when payments are directly made by the customer to the e-commerce participants bank account. In such a case, deduction of TDS by the operator will be difficult. Explanation to Section 194-O (1) expressly provides that the operator should deduct TDS and deposit it with the Government even if the payment is not being collected through the operator

Cancellation of orders or return to the suppliers is another a regular phenomenon in the electronic commerce world. A question arises as to whether such cancellation charges would also attract TDS ? Also section 194-O does not provide any clarity as to whether TDS would apply on the gross value of sales or net value after deducting sales return ?

Another situation is regarding discounts, e-commerce operator may provide various coupons/promotion codes customers and the customer pays the reduces price. But the operator may compensate the participant by paying full amount. The question is whether the payment made by the e-commerce operator should be liable for TDS or amount paid by customer should be liable for TDS ? One can say that the amount paid by the e-commerce operator includes a third-party consideration and, therefore, total amount paid should attract tax withholding

Given the ambiguities in the newly introduced section, the Government should provide unambiguous and easy tax framework under both the Direct Tax and the Indirect Tax regulations towards ease of doing business

(Contributed by Jestin Jacob)

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