Detailed Analysis of Section 194O of Income Tax Act,1961

Last Updated On: Aug. 29, 2020, 8:04 p.m.
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DETAILED ANALYSIS OF SECTION 194O OF THE INCOME TAX,1961

INTRODUCTION:

This section is introduced with the concern of revenue authorities to tax those e-commerce residents. These E-commerce residents were escaped from the tax liability when the chapter VIII of the Finance Act was introduced.

Since the provisions of Equalisation is applicable only to e-commerce Non-residents.

The main aim/purpose of this section is to target those assessees who are selling their products on platforms like Amazon/Flipkart/Myntra etc.

Although these platforms provide these small sectors a great scope to globalize their products using their digital platforms on the other hand there is greater escapement of taxation of income also noticed by the revenue.

 

Here are the provisions of the Section 194O to be read:

  • Section 194O is applicable to the resident of E-commerce residents. The provisions of service or sale of goods through the intermediary E-commerce operators who provide the digital platform/electronic platform to effectively facilitate the services of E-commerce participate
  • Section 194 O will be applied only when e-commerce participate is residents, if the e-commerce operator is a non-resident within the meaning of the Income tax act, then also this section shall apply. Since restrictions are only on e-commerce participate that he must be resident for the purpose of applicability of section 194O

When we buy any goods /services. E-commerce participation, the money which we paid first go to the e-commerce operator (the intermediary) & after that this money is transferred to e-commerce participate, but direct payments to the E-Commerce participators is also covered as per Explanation 1 to Section.

Explanation 1 to section with an example:

Mr. X gave an order of the third carpet whose sale price is Rs 11,000/- due to its specific features of cooling & although the transaction of the same was entered through Flip-Kart, the payment for the same was actually directly credited to the bank account of Mr. A (the e-commerce participate ) instead of making payment to the e-commerce operator the flip-kart.

Since the services had been provided using the digital platform of Flip-Kart the e-commerce operator, it has been deemed that for the purpose of deductions of TDS us 194 – O such Rs 11,000/- shall also include in the

Gross amount & TDS shall be deducted on this amount also by Flip-Kart.

 

Examples for better understanding of the section 194O:

1. Mr. X buys a laptop worth Rs 25,800/- from Laptop merchandise Limited using the digital platform of Flip-Kart. How much amount of tax to be deducted by Mr. X while paying the amount to Flip-Kart

TDS is not required to deduct by Mr. X since he is the buyer of the goods and not the intermediary.since the entire scheme is applicable only on intermediary being e-commerce operator. Hence, Flip-Kart is required to deduct the TDS

2. Mr. J purchased flight tickets from the USA to Delhi using the payment gateway of Amazon pay from the website of yatra.com Indian e-commerce participate.

The TDS shall still be attracted us 194 O it is a redundant matter for the purpose of section 194O that what is the residential status of the ultimate buyer/user of service

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