Section 194O of the Income Tax Act was introduced in Budget 2020 with the intention of bringing e-commerce operators under the purview of TDS (Tax Deduction at Source). In this section, we will discuss the provisions and implications of Section 194O.
Applicability of Section 194O
Section 194O is applicable to e-commerce operators who provide an electronic platform for the sale of goods and services. It requires the e-commerce operator to deduct TDS on the payment made to the e-commerce seller. The provision applies to e-commerce operators who have a gross turnover exceeding Rs. 10 crores in a financial year.
TDS Rate under Section 194O
The TDS rate under Section 194O is 1% on the gross amount of sales or services facilitated through the e-commerce platform. The TDS is deducted at the time of credit or payment, whichever is earlier.
Exemptions from TDS under Section 194O
The following transactions are exempt from TDS under Section 194O:
- Transactions where the seller is an individual or a HUF and the gross amount of sales or services facilitated through the e-commerce platform does not exceed Rs. 5 lahks in a financial year.
- Transactions where the e-commerce operator is an Indian resident and the seller is also an Indian resident.
Compliance requirements under Section 194O
The e-commerce operator is required to obtain a Permanent Account Number (PAN) or Aadhaar number from the e-commerce seller. The e-commerce operator is also required to furnish an annual statement of TDS to the seller and the income tax department.
Penalties for non-compliance with Section 194O
Non-compliance with Section 194O can attract penalties and interest charges. If the TDS is not deducted or deposited, the e-commerce operator is liable to pay interest at the rate of 1.5% per month from the due date of deduction to the actual date of deduction or deposit. Moreover, the e-commerce operator can also face penalty proceedings under Section 271C of the Income Tax Act.
Implications of Section 194O
Section 194O has significant implications for both e-commerce operators and sellers. E-commerce operators must ensure compliance with the provisions of this section, including obtaining PAN or Aadhaar numbers from sellers, deducting TDS at the applicable rate, and depositing the TDS to the government within the specified timeline. Failure to comply with these requirements can result in penalties and interest charges.
On the other hand, sellers must also ensure that they provide accurate PAN or Aadhaar numbers to the e-commerce operator to avoid incorrect TDS deductions. Sellers can claim credit for the TDS deducted while filing their income tax returns. However, if the TDS is not reflected in their Form 26AS or if there are discrepancies, they may face difficulties claiming credit.
Moreover, small sellers who do not meet the threshold for TDS exemptions may find it burdensome to manage the TDS compliance requirements. They may also face cash flow issues due to TDS deductions, which can impact their operations.
Conclusion
Section 194O is an important provision under the Income Tax Act that brings e-commerce operators under the purview of TDS. E-commerce operators must comply with the provisions of this section to avoid penalties and interest charges. Understanding the nuances of this provision can help e-commerce operators ensure compliance and avoid unnecessary costs.
Other Useful Links:
- Section 194IB of Income Tax Act
- Section 194J of Income Tax Act
- Section 194K of Income Tax Act
- Section 194N of Income Tax Act
FAQs about Section 194O of the Income Tax Act:
Q.1) What is Section 194O of the Income Tax Act?
Section 194O is a provision introduced in Budget 2020 that requires e-commerce operators to deduct TDS on payments made to e-commerce sellers.
Q.2) Who is an e-commerce operator under Section 194O?
An e-commerce operator is a person who owns, operates, or manages an electronic platform that facilitates the sale of goods and services.
Q.3) What is the TDS rate under Section 194O?
The TDS rate under Section 194O is 1% on the gross amount of sales or services facilitated through the e-commerce platform.
Q.4) Who is liable to deduct TDS under Section 194O?
E-commerce operators with a gross turnover exceeding Rs. 10 crore in a financial year are liable to deduct TDS under Section 194O.
Q.5) Are there any exemptions from TDS under Section 194O?
Yes, transactions where the seller is an individual or a HUF and the gross amount of sales or services facilitated through the e-commerce platform does not exceed Rs. 5 lakh in a financial year are exempt from TDS under Section 194O. Transactions where the e-commerce operator is an Indian resident and the seller is also an Indian resident are also exempt.
Q.6) What are the compliance requirements under Section 194O?
E-commerce operators must obtain PAN or Aadhaar numbers from sellers, deduct TDS at the applicable rate, and deposit the TDS to the government within the specified timeline. E-commerce operators must also furnish an annual statement of TDS to the seller and the income tax department.
Q.7) What are the penalties for non-compliance with Section 194O?
Non-compliance with Section 194O can attract penalties and interest charges. The e-commerce operator is liable to pay interest at the rate of 1.5% per month from the due date of deduction to the actual date of deduction or deposit. Moreover, the e-commerce operator can also face penalty proceedings under Section 271C of the Income Tax Act.
Q.8) How can sellers claim credit for TDS deducted under Section 194O?
Sellers can claim credit for the TDS deducted while filing their income tax returns. They must ensure that the TDS is reflected in their Form 26AS and provide accurate PAN or Aadhaar numbers to the e-commerce operator to avoid incorrect TDS deductions.
