SECTION 194O: DEDUCTION OF TDS BY E-COMMERCE OPERATOR 

Who is an Ecommerce Operator? 

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

An Ecommerce participant means an individual person who is a resident of India selling goods or providing services or both which also includes digital products through a digital or electronic facility or platform for electronic commerce.

Who is responsible to deduct TDS under section 194O of the Income Tax Act?

Any person, being E-commerce operator facilitating the sale of goods or provision of services of an E-commerce Participant through its digital or electronic Facility or platform.

Following persons are required to deduct TDS:

• Individual or Sole proprietorship & HUF (if they are liable to furnish or are furnishing Tax audit report under the Income tax act.
• LLP
• Partnership firm
• Company
• Society, AOP etc

When does an E-commerce seller is required to deduct TDS?

TDS provisions are applicable to E-commerce will be applicable as it is applicable to any other business.

a) An Individual or HUF as a seller in the E-commerce platforms is required to deduct TDS if they are liable to furnish or are furnishing Tax audit reports under the Income tax act.

2) Any other E-commerce seller, like a company, LLP, etc. is required to deduct TDS even if a Tax audit is not applicable.

Following are the Payments/Expenses on which TDS is required to be deducted:

According to the nature of the expense/payment, there are threshold limits & rates at which TDS deduction has to be made.
 

• Salaries
• Interest
• Professional fees
• Technical fees
• Contracts
• Commission
• Rent

What is the rate of TDS to be deducted under section 194O?

TDS is to be deducted at 1% on the gross amount of sales or services or both. If there is an absence of PAN/ Aadhar, TDS has to be deducted at the rate of 5% as per the amendment of section 206AA.

Definition of Gross Amount:

The section uses "gross amount of sales" which means the e-commerce operator will require to deduct TDS on the GST portion of sales and Commission and affiliation portion also which the e-commerce operator himself will withhold.

Kindly note:0.75% w.e.f. 14.05.2020 to 31.03.2021

What is the process to comply with the TDS provisions?

You are required to do the following to comply:

1. Calculate TDS on the basis of the nature of services/expense & applicable sections

2. Deposit TDS with the government on monthly basis by the 7th of next month

3. File TDS return quarterly by end of next month after the quarter-end

4. Generate TDS certificates in form 16/16A

5. Furnish TDS certificates to e-commerce platforms & claim a refund

What are the consequences of not complying with TDS provisions?

Since Income tax Act requires to follow & comply with the TDS provisions, not following on such compliances attracts

• Disallowance of expense due to non-compliance with TDS provisions.
• Interest on late/non-deduction of TDS
• Penalty on late/non-deduction of TDS
• Penalty for late/non-filing of TDS returns