An overview of TDS U/S 194O: Key issue

1.  According to Section 194O of the Income Tax Act, an E-commerce operator is responsible for deducting TDS at the rate of 1% of the gross amount credited to the seller’s account or at the time of making payment, whichever is earlier.

2. This applies to any transaction the e-commerce platform facilitates involving goods and services which includes professional and technical services.

3. The TDS must be deducted at the time of crediting the seller’s account, irrespective of the mode of payment. Section 194O under the Financial Act 2020 imposes taxes on the e-commerce platform, which was not done before.

4. Certain issues are addressed in the guidelines outlined in Circular No. 20 of 2023-Income Tax dated December 28, 2023 by CBDT:

A. E-commerce operators impose convenience fees or commission per transaction, delivery fees, etc on the transaction of sale of goods or services through the E- Commerce Platform. Do these elements constitute part of the “gross amount” for TDS purposes under section 194-O of the Act?
These charges are considered part of the gross amount. Payments made to the platform or network provider, such as ONDC, which facilitates the transaction, will also be included in the gross amount subject to TDS under Section 194-O.

B. Who should deduct tax at source where there are multiple E-Commerce operators (ECO) involved in a transaction?
In compliance with section 194-O of the Act, the responsibility lies with the E-Commerce Operator making the payment to the seller.