Section 194-O was inserted in the Finance Act, 2020 which helps in the elaboration of levying Tax Deducted at Source (TDS) on payments made to 1% for the to E-Commerce Participants, which would get applicable for the transactions from 1st October 2020 onward.

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Section 194-O should get applicable on Residents and Non-Resident E-commerce operators who are making payment to resident e-commerce participants with the sale of goods or services including digital products like E-book, podcasting, blogs, audio-video etc. facilitated through its digital or electronic facility or platform.

E-Commerce operator means a person who owns, operates, or manages a digital/electronic facility for the sale of goods and services and also for making payments to the e-Commerce participant on such sales.

Earlier before the insertion of this section, 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 did not file their income tax returns and escaped the tax liability.

According to Section 194-O, E-commerce operators should deduct TDS at the rate of 1% on the gross amount of sales of goods or services facilitated by e-commerce operators through the digital or electronic platform to the participants.

The TDS rate of 1% would apply either at the time of credit to the e-commerce participants or payment by any mode or where the purchaser of goods or services makes payment directly to e-commerce participants.

Exceptions for the TDS deduction is as follows-

  1. An individual or HUF only, where the aggregate gross sale of goods or services or both is not likely to exceed INR 5 Lakhs during the Financial Year; and such person has furnished PAN or an Aadhar to the e-commerce operator, the TDS under section 194-O can not be deducted.
  2. No TDS can be deducted if any payment which is covered under section 194-O shall not be liable to TDS under any other provision of the Act.

With Warm Regards,

CL Bureau.

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