08 Feb 2020Posted By: Mudit Handa


How much TDS to be Deducted on E-commerce Sellers’ Income?

The Union Budget 2020 was presented on the 1st of February 2020 in the parliament by the esteemed Finance Minister of India Smt. Nirmala Sitharaman.

This year’s budget can be termed as a tax-friendly budget since it has given respite to millions of taxpayers with a massive reduction in the income tax slabs.

The government has brought great tax reliefs and brought a new Income tax slab, as per which income up to ₹5 lakhs shall be tax-free.

In a bid to broaden the tax base, the government has also announced that E-commerce operators such as Amazon and Flipkart that facilitate the sale of goods & services are now required to deduct TDS @ 1% on the gross amount of sales exceeding ₹5 lakhs. 

In this regard, a new section 194-O shall be inserted in the Income Tax Act 1961.

Let’s understand the key highlights of this update.

 

1. What is the significance of section 194-O of Income Tax Act?

The new section 194-O of Income Tax Act has been introduced to levy income tax the sale of goods or services or both through the e-commerce portal. 

  • With its effect, the E-commerce operator (e.g. Amazon or Flipkart) is supposed to deduct tax @ 1% at the time of payment or credit to the account of an E-commerce seller.

  • If the E-commerce seller has provided his PAN or Aadhar to the E-commerce operator, then TDS will be deducted only if his gross sales or services or both during the financial year exceed 5 Lacs.


2. What if PAN or Aadhar not provided to the E-commerce operator?

In this regard, another Section 206AA of the Income Tax Act has been amended. With its effect, if the E-commerce seller has not provided his PAN or Aadhar to the E-commerce operator, then TDS will be deducted @ 5%, regardless of how much his gross sales or services or both during the financial year have been.

Also, know about Union Budget 2020: Direct tax updates. 


3. Who is an E-commerce seller?

E-commerce participant or seller means an entity resident of India selling its goods or providing services or both, including digital products, through the digital platform, i.e. the E-commerce portal or E-commerce operator e.g. Amazon or Flipkart.

Here, services are defined to include the fees for technical services and for the professional services, as defined in section 194J of the Income Tax Act 1961.


4. What does the word Gross sales mean?

It is very important to note here the term “Gross amount of Sales” signifies that e-commerce operator has to deduct TDS on:

  • GST portion of sales and 

  • On the Commission and affiliation charged by the e-commerce operator, which he holds back. 

  • So, the e-commerce Seller himself is not holding any amount on account of GST, Commission or advertising fees.

  • TDS @ 1% will be deducted on all these amounts in view of the Gross Sales. Know more about TDS return filing.

We can better understand this with the help of the table given below:-

Particulars 

Amount (₹)

 Sales

10,00,000 

 +GST @ 18%

1,80,000 

 Total Receivable by Seller (A)

11,80,000 

 Commission @15% charged by Flipkart (B)

1,77,000 

 (-) Affiliations, shipping & Advertisement Fee (5%) (C)

59,000 

 (-) TDS @ 1% of Gross Sales of ₹11,80,000/- (D)

11,800 

 Net Receivable in the hand of the Seller (A-B-C-D)

9,32,200 


5. When will the new section 194-O be made effective?

The new section 194-O be brought into effect from 1st April 2020.

 

Also, refer to the 

If you need any further guidance as regards the Income-tax return filing procedure, please feel free to contact our business advisors at 8881-069-069.

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