Section 194O-TDS Payments made to E-Commerce Participants

Section 194O-TDS Payments made to E-commerce Participants

Section 194O-TDS Payments made to E-commerce Participants

Section 194O has been introduced in the Union Budget 2020. According to Section 194O, an e-Commerce operator is required to deduct TDS for facilitating any sale of goods or providing services through an e-Commerce participant. TDS on e-commerce operators under section 194-O is applicable from 1 October 2020.

E-commerce Operators & E-commerce Participants

(A) E-commerce Operator: An e-Commerce operator is a person who owns, operates, or manages a digital/electronic facility for the sale of goods and services. He is responsible for making payments to the e-Commerce participant on such sales.

(B) E-commmerce Participant: An e-Commerce participant is a person who sells goods, services, or both through an electronic facility provided by an e-Commerce operator. He must be a resident of India.

Scope of Section 194O

E-Commerce operators should deduct TDS @1% at the time of credit of the amount of sale of goods, services, or both to the account of an e-commerce participant or at the time of making payment to an e-Commerce participant by any other mode, whichever is earlier.

1. E-commerce participant being a resident individual or HUF

E-commerce operator is not required to deduct TDS if the gross amount of sale of goods, services, or both during the previous year does not exceed Rs 5 lakh and if the e-Commerce participant has furnished his PAN or Aadhaar.

If the e-Commerce participant does not furnish his PAN or Aadhaar, TDS must be deducted at the rate of 5%, as per provisions of Section 206AA.

2. E-commerce participant being a non-resident

As stated earlier, an e-Commerce participant must be a resident of India. Thus, no TDS will be deducted if the participant is a non-resident.

For Example:- A proprietary firm XYZ (e-commerce participant) is selling its products through Flipkart (e-commerce operator). Mr A buys this product online from XYZ for Rs 50,000 on 1 October 2020.

Flipkart credits the account of XYZ on 1 October 2020, but the customer makes the payment directly to XYZ on 15 October 2020.

Here, Flipkart is required to deduct TDS @1% on Rs 50,000 at the time of credit to the party or making payment, whichever is earlier. In this case, TDS should be deducted on 1 October 2020.



Purpose of Section 194O

The purpose of the introduction of Section 194O is to widen the TDS base by bringing e-Commerce participants under the tax. Of late, customers prefer digital platforms for buying or selling of goods and services because:

From the sellers' perspective:-

It requires less cost for creating the setup and less effort for the search of buyers.

From the buyers' perspective:-

Many options are available at one platform and the comparison of products becomes very easy.
This has resulted in an increase in the number of e-Commerce users over a period of time. It is difficult to identify small sellers (e-Commerce participants) who don’t file their income tax returns. Thus, the government has enlarged the tax base to bring such e-Commerce participants under the tax base.

Exceptions to section 194O, if any
  • Non-resident e-Commerce participants are exempted from the scope of this section.
  • A ceiling limit of Rs 5 lakh is set only for resident individuals and HUF. Thus, an e-Commerce operator is not required to deduct TDS if the amount, paid or credited to individuals/HUF during a financial year, does not exceed Rs 5 lakh.

Law before section 194O

Earlier, 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 didn’t file their income tax returns and escaped the tax liability.





For more information on this visit TAXAJ.


Posted by Aashima
Team TaxaJ

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