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


Union budget 2020 has introduced the section 194-O, in which an E-commerce operator is required to deduct TDS to facilitate any sale of goods or offer services via an E-commerce participant.

TDS on E-commerce operators under the section 194-O will be applicable from the 1st of October, 2020.

Definition of E-Commerce Operators and E-Commerce Participants
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.
E-Commerce 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 194-O

Under section 194-O, TDS to be deducted by E-Commerce operator at the rate of 1% (in case the assessee have PAN) or 5% (in case the assessee have no PAN) (0.75% up to 31.03.2021) at the time of gross amount of sale of goods/services, whether paid or credited to the account of an E-Commerce participant, whichever is earlier, exceeds threshold limit of Rs. 5,00,000 in the financial year.

E-commerce participant being a resident individual or HUF-
  • If the E-Commerce participant is a resident Individual or HUF and the gross amount of sale of goods/services, whether paid or credited exceeds the threshold limit of Rs. 5,00,000 in the financial year, TDS will be deducted at the rate of 1% on Gross Sales.
  • E-Commerce operator is not required to deduct TDS if the gross amount of sale of goods/services, whether paid or credited during the financial year does not exceed the threshold limit of Rs 5 lakh.
  • 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.
Example (If E-Commerce participant is resident)-
M/s ABC & Co. (Proprietary firm) (Resident E-Commerce participant), sells its products via Amazon (e-commerce operator). Mr. Bajaj purchases this product online from ABC & Co. for Rs. 22,000 on the 10th of November, 2020. Amazon credits M/s ABC & Co’s account on the 10th of November, 2020, but the payment made directly to M/s ABC & Co. on 15th of November, 2020. What will be date of TDS deducted under section 194O?
Amazon has to be deducted TDS @1% on Rs. 22,000 i.e. Rs. 220 on 10th November 2020 from M/s ABC & Co., because TDS will be deducted at the time of credit to the party or make the payment, whichever is earlier.


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.

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.

Due date for payment of TCS-

The person responsible for deducting tax shall deposit the TDS amount within 7 days from the last day of the month in which the tax was deducted.


Form of Return-

Tax deductor shall submit quarterly TDS return i.e., Form 26Q in respect of the tax deducted by him in a particular quarter.


Certificate to be issued-

Tax deductor issued to seller the certificate in the Form 16A, for the amount of tax deducted.


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