All e-commerce enterprises are now subject to TDS, thanks to Section 194O, which was published in the Union Budget 2020. You’re not alone if you’re having trouble figuring out TDS payments for your eCommerce business. On the plus side, you’ve arrived at the right location.
As more firms open online stores, it is critical for the IT Department to ensure that these enterprises pay taxes on their earnings. Many small eCommerce enterprises previously refused to file their income tax forms. With the adoption of Section 194O, all e-commerce enterprises are required to pay TDS.
Section 194O: TDS on eCommerce payments
We’ve outlined all you need to know about Section 194O, which took effect from October 1, 2020, and how it will affect your eCommerce sales.
What is TDS?
TDS was created with the goal of collecting tax directly from the source of revenue. According to this concept, a person (deductor) who is required to make a payment of a specific sort to another person (deductee) must deduct tax at source and send it to the Central Government’s account. On the basis of Form 26AS or TDS certificate issued by the deductor, the deductee whose income tax has been deducted at source is entitled to a credit for the amount thus deducted.
According to the Finance Act 2020, every eCommerce operator must deduct 1% TDS (0.75 percent for FY 2020-21, valid until March 31, 2021) from the gross amount of the eCommerce participant’s sales.
Note: The GST component will not be subject to TDS.
TDS Decuction Time
The TDS must be deducted by the eCommerce operator like Amazon, Flipakrt etc. at the time of payment to the eCommerce participant/sellers.
TDS Rate Percentage
TDS will be deducted at a rate of 1% on gross sales if the eCommerce participant is a resident individual or HUF and gross sales exceed Rs 5,00,000 (Five Lakh) in the financial year.
TDS will be deducted at a rate of 5% regardless of the total sales amount if the deductee does not furnish a PAN or Aadhaar.
What is TDS Certificate?
Form 16A must be issued by the eCommerce operator to the eCommerce vendor/seller. The seller can use this form to claim credit for the tax deducted when completing his or her income tax return.
TDS Return Filing
The deductor shall file Form 26Q on TRACES (TDS Reconciliation Analysis and Correction Enabling System) to disclose the details of the dividend payment after depositing TDS with the income tax department.
When tax is not deductible?
TDS is not deducted under the following conditions:
eCommerce participant is an individual or HUF and gross amount of such sale of goods/services through e-commerce operator during the previous financial year is under Rs. 5 lakh and the eCommerce participant has furnished his PAN or Aadhaar number to the eCommerce operator.
Example of TDS deduction for an eCommerce Seller
Let’s say Sunil is a registered e-commerce seller on Amazon (e-commerce operator). Here are the details of his sales.
Gross sales = Rs. 6,20,000
GST @ 18% included in the above sales = Rs. 94,576
Amazon’s commission @ 3% = Rs. 18,600
TDS Calculation according to Section 194O
E-Commerce Operator – Amazon
E-Commerce Seller – Sunil
TDS = 1% of 6,20,000 = Rs. 6,200
Amazon is required to,
- deduct TDS of Rs. 6,200 at the time of credit fulfilment or making payment, whichever is earlier.
- file TDS return via Form 26Q & issue form 16A to Sunil.
If Sunil fails to furnish the PAN or Aadhar details, then TDS should be deducted @ 5% irrespective of gross sales amount.
Penalties on eCommerce Operator
The following penalties will apply if the deductor (eCommerce operator) fails to file and pay the TDS.
Non-deduction of TDS will result in interest at the rate of 1% per month or a part thereof.
Non-payment of TDS by the 7th of every month would incur interest at the rate of 1.5 percent per month or part thereof.
Non-filing of TDS returns on a quarterly basis will incur interest at the rate of Rs 200 per day.
FAQs on TDS
E-commerce operators will be required to withhold and deposit a percentage of gross sales of products/services by marketplace merchants to the government. This withholding does not apply to vendors’ offline transactions.
Individuals and Hindu Undivided Sellers (HUFs) whose gross sales of a product or service throughout the financial year are less than INR 500,000 and who provide a PAN or Aadhaar are exempt. Furthermore, the TDS requirements only apply to sellers who are Indian citizens.
The rules will take effect on October 1, 2020.
TDS will be applied on the gross amount of sales from goods or services, without taking into account sales returns, as per the tax rules.
No, there will be no TDS on the GST component.