LI Network
Published on: January 21, 2024 at 11:12 IST
The Central Board of Direct Taxes (CBDT) has recently issued a set of guidelines aimed at simplifying various issues associated with the application of Section 194-O of the Income Tax Act in various e-commerce operator (ECO) models, including the Open Network for Digital Commerce (ONDC).
This move by the CBDT is a significant step toward providing much-needed clarity, particularly in cases where e-commerce transactions occur on platforms like the Open Network for Digital Commerce (ONDC) and involve more than one ECO.
Section 194-O of the Income Tax Act mandates the deduction of tax when the sale of goods or the provision of sale, or both, involving an e-commerce participant (buyer or seller), is facilitated by an ECO through its digital facility or platform.
According to the provisions of Section 194-O, the ECO is required to deduct income tax at a rate of 1% from the gross amount of the sale of goods or services, or both. This deduction should occur either at the time of crediting the amount to the e-commerce participant’s account or at the time of payment, whichever is earlier.
The issued guidelines offer clarification on various aspects, including tax deductions in multiple ECO transactions, the inclusion of several fees in the gross amount, exclusion of GST and other taxes, adjustments for purchase returns, and the treatment of discounts.
In cases involving multiple ECOs, the ECO responsible for making payment to the seller must comply with the requirements of Section 194-O.
The guidelines specify that if the seller-side ECO is not the actual seller, the ECO making the payment to the seller is obligated to comply with Section 194-O. Conversely, if the seller is the ECO, then the other ECO making payment to the seller must also comply with Section 194-O.
The circular further clarifies that the gross amount subject to tax deduction includes commissions to be given to ECOs, delivery charges, and other similar charges. Payments may be made to the platform or network provider if they are part of the transaction.
Regarding the Goods and Services Tax (GST) component, if it is separately indicated in the invoice, tax should be deducted on the amount credited without including GST and other taxes.
However, if tax is deducted on a payment basis, it should be deducted on the entire amount, as it may not be possible to identify GST and other taxes for future invoicing.
In cases of purchase returns, where tax has already been paid, adjustments can be made in the next transaction with the same seller in the same financial year. For discounts, if provided by the seller, TDS would be deducted on the reduced price. However, if the ECO provides the discount, TDS would be deducted on the gross amount.
