Section 194O

 Union Budget 2020 includes introduction of Section 194O. TDS deduction is mandated by Section 194O for every E-Commerce operator that facilitates sale of goods or renders services via E-Commerce participant. TDS on online retailers under section 194-O will take effect on October 1, 2020.

What Is Section 194O Of Income Tax Act?

E-commerce operators are required to deduct TDS at rate of 1% of gross amount debited to seller's account or at time of payment, whichever is earlier, in accordance with Section 194O of Income Tax Act. This holds true for any transaction involving products & services, including technical & professional services, that e-commerce platform facilitates.
It is imperative that TDS be subtracted at point of account crediting for seller, regardless of manner of payment. Financial Act 2020's Section 194O taxes e-commerce platform, something that wasn't done previously.

Key Provisions Of Section 194O

Every registered e-commerce operator in India is required under section 194O of Income Tax Act to deduct TDS of 1% (or 0.75% for Financial Year 2021, effective until March 31, 2021) on gross amount collected from sale of goods or services through their online platforms. All e-commerce players, regardless of their size, type, or nature, are subject to same 194O TDS rate.

Who Is Required To Comply With Section 194O?

Any individual acting as e-commerce operator who uses its digital or electronic facility or platform (under whatever name) to facilitate sale of goods or provision of services by e-commerce participant.
Following implementation of Section 194O of Income Tax Act, which went into effect on October 1, 2020, e-commerce providers are now required to deduct TDS before paying participants.
In event that participant's gross sale exceeds ₹ 5 lakh, they will be responsible for TDS at rate of 5% under section 206AA if they fail to provide their PAN.

What Is Rate Of TDS Under Section 194O?

As previously stated, regardless of kind, size, or character of each e-commerce participant, 194O TDS rate stays at 1% of gross sales.

What Is Rate Of TDS Under Section 194O?

As previously stated, regardless of kind, size, or character of each e-commerce participant, 194O TDS rate stays at 1% of gross sales.

To qualify for TDS deduction under section 194O, e-commerce participant's gross sales amount must, however, exceed ₹5 lakhs if they are resident individual or Hindu Undivided Family (HUF). If individual participating in e-commerce is not resident, there are no TDS deductions that need to be made.

Additionally, regardless of gross amount, rate for 194O TDS deduction is 5% if e-commerce participant fails to present their KYC documents, such as PAN card & Aadhar card.

Time Of Deduction Of TDS Under Section 194O

When credit or payment is issued to e-commerce participants, this reduction must be made. This means that before paying e-commerce participants for sales of their goods or services made through e-commerce platforms, e-commerce operators must subtract 194O TDS amount.

Exemptions To Section 194O

Exceptions to Section 194O, if any: This section does not apply to non-resident e-commerce participants.

• Maximum amount that can be earned by residents & HUF is Rs 5 lakh. Therefore, if amount paid to people or credited to HUF within financial year does not exceed Rs 5 lakh, e-commerce operator is not required to deduct TDS.
• If money is given to individual or Hindu Undivided Family (HUF), it is free from section 194O's limits of Rs. 5 lakh. As result, e-commerce operator is no longer obligated to deduct tax at source.
• Participants in e-commerce who are not residents are likewise free from this portion.
   

Consequences Of Non-Compliance With Section 194O

If e-commerce operators neglect to file TDS return & deposit TDS amount within designated timeframe, Income Tax Department has authority to apply particular penalties. They are listed in following order:
Every month on seventh, TDS must be submitted. If online retailer doesn't comply, they will be charged 1.5% interest on amount they still owe each month.
A monthly interest charge of 1% is imposed on TDS amount in event that e-commerce participant neglects to deduct required amount.
There's also daily penalty of ₹200 for failing to file TDS returns on quarterly basis.

Conclusion

Section 194O of Income Tax Act mandates that Electronic Commerce Operator (ECO) deduct Tax Deduction at Source (TDS) on e-commerce transactions. This provision applies to digital transactions conducted via e-commerce platforms. TDS rates & withholding tax obligations ensure tax compliance for payment settlement entities. This measure aims to streamline tax collection from online business activities.