Section 194O of income Tax act: TDS on e-commerce payments

What is section 1940 of the Income Tax Act?

Section 194O of the Income Tax Act pertains to the TDS (Tax Deducted at Source) on e-commerce transactions.

What is the rate of tax deduction under section 1940?

It requires e-commerce operators to deduct TDS at 1% on the gross amount of sales, services or both when the payment is made to a seller on their platform. 

Who is required to deduct tax under section 194o?

The e-commerce operator is responsible for deducting the TDS, depositing it with the government, and issuing a TDS certificate to the seller. This provision applies to all e-commerce transactions, domestic or international and came into effect on October 1, 2020.

Section 194O of Income Tax Act: Main facts

Section 194O of the Income Tax Act pertains to the TDS (Tax Deducted at Source) on e-commerce transactions. As per this section, e-commerce operators are required to deduct TDS at 1% on the gross amount of sales or services provided or facilitated by them through their digital or electronic facility or platform. The TDS is to be deducted at the time of crediting —for example, an amount to the supplier’s account or at the time of payment thereof in cash, by the issue of a cheque or draft, or by any other mode, whichever is earlier. The e-commerce operator is also required to file a TDS return in relation to the deduction on e-commerce transactions.

The TDS must be deposited to the government quarterly, and the e-commerce operator must file a TDS return. The responsibility for deducting TDS and depositing it to the government lies with the e-commerce operator, not the seller or buyer.

Section 194O: Purpose

Section 194O of the Income Tax Act is related to the TDS (Tax Deducted at Source) on e-commerce transactions. This section aims to ensure that e-commerce operators deduct tax at source on the payments made to the sellers on their platform. It helps ensure that the sellers pay their taxes on the income earned through e-commerce sales. 

The e-commerce operator is responsible for deducting tax at the source and depositing it with the government. It helps simplify the tax compliance process for small sellers and increases the tax base.

Section 194O of Income Tax Act: TDS on e-commerce payments

Section 194O of the Income Tax Act of India requires e-commerce operators to deduct tax at source (TDS) on payments made to e-commerce participants, such as sellers or service providers, for transactions on their platforms. The TDS rate is 1% for payments made to individuals and Hindu Undivided Families (HUFs) and 2% for payments made to other entities. The e-commerce operator is responsible for depositing the TDS with the government and issuing a TDS certificate to the e-commerce participant. This section applies to e-commerce operators with an aggregate turnover of more than Rs 2 crores in the previous financial year.

Who has to pay tax under this section?

Under Section 194O of the Income Tax Act of India, any person responsible for making payments to a resident individual or HUF (Hindu Undivided Family) for the sale of goods or services through an e-commerce operator is liable to deduct TDS (Tax Deducted at Source) at the rate of 1%. It applies to payments made on or after October 1, 2020. The e-commerce operator deducts TDS and deposits it with the government.

Section 194O of Income Tax Act: Scope

Section 194O of the Income Tax Act of India deals with the TDS on e-commerce transactions. It requires e-commerce operators to deduct TDS at the rate of 1% on the gross amount of sales made through their portal when the amount exceeds Rs 2,50,000 in a financial year from the payment made to the e-commerce participant (seller).

The scope of this section includes all types of e-commerce transactions, including the sale of goods and services and the provision of digital products through an electronic platform. This section applies to Indian and foreign e-commerce operators and e-commerce participants (sellers) who are residents of India.

Section 194O of Income Tax Act: Penalties

Section 194O of the Income Tax Act in India deals with TDS (Tax Deducted at Source) on e-commerce transactions. Under this section, e-commerce operators are required to deduct TDS at 1% on payments made to e-commerce participants (such as sellers) for online sales.

Penalties for non-compliance with Section 194O include:

• Failure to deduct TDS: Interest at the rate of 1% per month or part of a month on the amount of TDS not deducted.
• Failure to deposit TDS: Interest at the rate of 1.5% per month or part of a month on the amount of TDS not deposited.
• Failure to file TDS return: Penalty of Rs 200 per day, up to a maximum of Rs 1,00,000.

It is important to note that these penalties are in addition to any interest or penalty that may be imposed for failure to deposit TDS under other sections of the Income Tax Act.

See also about: Section 194Q

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