New guidelines on Tax Deduction at Source under 194-O of the Income Tax Act, 1961

Previously, Finance Act, 2020 had inserted new section 194-O in the Income Tax Act, 1961 (The Act), that an e-commerce operator (ECO) shall deduct income tax at the rate of one percent of the gross amount of sale of goods or provision of service or both, provide through its digital or electronic platform. However, exemption have given for certain individual and HUF subject to some condition i.e. The gross amount such sale or services or both during the previous year upto INR 5 lakh & the e-commerce participant has furnished his PAN or Aadhar to the e-commerce operator. To remove difficulty under section 194O Central Board of Direct Tax(CBDT) issue the Guidelines through the Circular No. 20 of 2023 F. No. 370142/43/2023TPL:

1. Who should deduct tax at source where there are multiple e-commerce operators (ECO) involved in a transaction?Finance Act, 2020 had inserted section 194-O in the Act that an e-commerce operator (ECO) shall deduct income tax at the rate of one percent of the gross amount of sale of goods or provision of service or both, provide through its digital or electronic platform.Multiple E-Commerce Operators (ECO) are involved in a transaction but Seller side ECO is not the actual seller. In this situation the seller side ECO, who is finally making the payment to the actual seller, will be liable to deduct the TDS

2. E-commerce operators may be levying convenience fees or charging commission for each transaction and seller might levy logistics & delivery fees for transaction. Would these form part of “gross amount” for the purpose of TDS?These would form part of 'gross amount' for the purposes of TDS under section 194-O of the ITA if they are included in the payment for the transaction.For example:  A buyer purchases goods worth INR 100 from seller and opts for home delivery and the seller charge additional INR 5 as packing fees, INR 10 as shipping fees & INR 3 as a convenience charge. So the seller will issue an invoice for INR 118. The shipping fees, packaging fees, and convenience fees are separately charged to the buyer in relation to main supply. In such a case, TDS to be deducted under section 194-O on INR 118.

3. How will adjustment for purchase returns take place?With respect to purchase return under section 194-O, tax must have already deducted before the purchase return. In that case, the tax deducted may be adjusted against next purchase against the same seller and no adjustment is required if the purchase return is replaced.

4. How will discounts given by seller as an e-commerce participant or by any of the multiple e-commerce operators be treated while calculating “gross amount”?
   1. Where the discount is given by the seller itself, the seller would reduce the price of the products sold or services provided.For example: The label price of a product is INR 100, and the seller offers a discount of INR 10. In this case, the TDS will be calculated on INR 90.
   2. Where the discount is given by the buyer ECO/seller ECO. For example: Discount given by the buyer ECO, if the price quoted by the seller is INR 100, and the buyer ECO gives a discount of INR 10 then INR 90 will be collected from the buyer and pay to the seller and the buyer ECO will pay the remaining INR 10 to the seller. The invoice on the buyer will be raised for INR 100 TDS will be deducted by the seller ECO on INR 100.

5. How will GST, various state tax if any other than GST (i.e. VAT/Sales tax etc.) be treated when gross amount of sales of good or provision of services?  In that case the GST component has been indicated separately in the invoice and tax shall be deducted on the amount credited without including such GST. If the tax is deducted on payment basis because the payment is earlier than the credit, the tax would be deducted on the whole amount as it is not possible to identify the GST component.  

Riya Bansal

Executive – Direct Tax

11^th, January 2024