Introduction

Section 194-O of Income Tax Act which became applicable since 1st April 2020 specifies the applicability of TDS on e-commerce transactions. Since everyone these days orders everything from groceries to clothing online, the Government of India has decided to charge TDS for all online e-commerce monetary transactions. This comes as the revenue department was unable to identify those small sellers, who had been selling their products online but were not filing their income tax.

Scope of the section

This section aims to bring e-commerce participants under the taxation domain and thus achieve transparency about the income earned by the seller of goods online. This section requires an e-commerce operator to deduct TDS at the time payment or credit to the account of the seller is made. TDS is to be paid by the operator of e-commerce for facilitating service of selling of goods online.

Applicability of the section

This section will apply from 1st October 2020 to every person selling on online platforms. An operator need not deduct TDS if the amount paid to the seller is less than Rs. 5 lakh because of the income tax for those with income below Rs. 5 lakh is zero. Once the TDS has been deducted by the operator, the seller need not make any payments in respect to TDS later. This section further provides a lower deduction or no deduction of TDS as per section 197 on submission of a particular Form No. 13.

The TDS rate applicable under this section

The rate applicable to the resident sellers is 0.75% of the TDS rate, while it is 5% for those who do not furnish the operator with their PAN Card details or Aadhar Card details. The TDS rate decided by the Government is 4%.

Other provisions under this section

Operator under this section is defined as any person who manages digital or electronic platform and participant as anyone who sells his /her goods or products on an online electronic platform.

The Board may issue guidelines after seeking approval from the Central Government on how to implement this section if any issues regarding the implementation are to arise in future. Every guideline shall be placed before the Parliament and if approved, will apply to the income-tax authorities and e-commerce operators. Further Non-resident e-Commerce participants are exempted from the scope of this section.

Conclusion

This section aids the Government in bringing a lot of people under tax ambit that have not been paying income tax for the income collected by selling products and goods on e-commerce websites. The concept was formulated when the Government found that very few online sellers had been paying taxes and to find out who had not been filing their returns, this section was formulated. This section will help boost the revenue by having more taxpayers who had been in the shadows for the past few years. This is a very well thought section and the Government must be lauded for their efforts