CBDT has issued detailed guidelines regarding Tax Deduction at Source (TDS) u/s 194-O in the case of e-commerce operators (ECOs), vide Circular 20/2023.
Section 194-O of the Income Tax Act, 1961 mandates ECOs to deduct 1% of the gross amount of sales or services facilitated through their digital platforms. This deduction must occur either at the time of crediting the amount to the e-commerce participant’s account or at the time of payment, whichever comes first. Key issues addressed by the Circular include:
1. Tax Deduction in multiple ECO transactions: The responsibility for section 194-O compliance depends on whether the seller-side ECO is the actual seller or not.
a) Situation-1: If the seller side ECO is not the actual seller, compliance is the responsibility of the ECO making the final payment to the seller.
b) Situation-2: If the seller side ECO is the actual seller, compliance lies with the ECO making the payment to the seller.
2. Inclusion of various fees in gross amount: Convenience fees, commissions, logistic charges, and delivery fees should all be incorporated into the “gross amount” for TDS purposes. Payments made to platform providers for transaction facilitation are also included if linked to the transaction.
3. Exclusion of GST and other taxes: Tax deduction should be on the amount credited without including GST and other taxes if they are separately indicated in the invoice. However, if tax deduction is on a payment basis, it should be on the entire amount.
4. Treatment of purchase returns and adjustments: Adjustments against the next transaction with the same seller in the same financial year can be made if tax has already been deducted before the purchase return. No adjustment is necessary if the purchase return is replaced by the goods.
5. Treatment of discounts: Seller discounts lead to a reduction in the price of products/services sold. TDS is deducted on the gross amount for discounts offered by ECOs.
In nutshell, CBDT Circular 20/2023 offers comprehensive guidance on TDS in the e-commerce sector, aiming to enhance clarity and compliance in digital commerce. E-commerce operators and stakeholders are advised to adhere to these guidelines for smooth financial operations.
CBDT Income Tax Circular 20/2023 dated 28/12/2023: Guidelines for ECOs on TDS u/s 194-O