Income Tax: CBDT releases circular on 1% TDS on e-commerce transactions. Details here

Income Tax: CBDT releases circular on 1% TDS on e-commerce transactions. Details here

The Finance Act, 2020 has a provision under Section 194-O of the Income Tax (I-T) Act which mandated that e-commerce operator will deduct income tax at the rate of one percent of the gross amount of sale of goods or provision of service or both.

The Central Board of Direct Taxes (CBDT) released a circular on Dec 28 to clarify certain doubts relating to the application of this provision. 

Let us understand some of the key provisions of this circular:

The circular states that the deduction is meant to be made at the time of credit of the amount of sale or service to the account of e-commerce participant. The confusion, however, arises when there is more than one e-commerce operators (ECO). And there may be a platform or network such as Open Network for Digital Commerce (ONDC) on which multiple operators are participating in a single transaction.

For example, there could be a buyer side e-commerce operator and one seller side e-commerce operator.

When there is a buyer side e-commerce operator providing an interface to the buyer and a seller side e-commerce operator giving an interface to the seller, then the tax deduction is supposed to be done by the seller side operator who eventually makes the payment to the seller. 

Tax on gross amount

When e-commerce operators are levying convenience fees or charging commission, or payments are made to network such as to the ONDC, then one might wonder whether these payments (or commissions) become a part of the gross amount for the purpose of calculating one percent TDS.

As we know that the tax is deducted on the gross amount of such sales of goods or services.

The circular clarifies that the TDS will be deducted by the seller side e-commerce operator on the gross sum of sales of goods which include packing fees, shipping fees and convenience fees.

Additionally, if payments have been made to the platform or network (such as ONDC) provider for facilitating the transaction, these would form part of gross amount for the purpose of TDS under Section 194-O if they are included in the payment for the transaction. 

However, if these are being paid on a lumpsum basis and not linked to a specific transaction, then these need not be included in the gross amount for computing 1% tax deducted on source. 

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Published: 29 Dec 2023, 07:08 PM IST

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