Section 194O was introduced in the Union Budget 2020 and came into effect from 1st October 2020. It requires e-commerce operators to deduct TDS on the gross amount of sales or services facilitated through their platform at the time of crediting the e-commerce participant’s account or making payment, whichever is earlier.
This section covers all transactions involving the sale of goods or services, including professional and technical services, conducted through e-commerce platforms.
Who Are E-Commerce Operators and Participants?
E-commerce Operators
E-commerce operators are entities that own, manage, or maintain digital platforms used for selling goods or providing services. They are responsible for deducting TDS before making payments to the participants.
Example: Amazon, Flipkart, Zomato, Uber
E-commerce Participants
An e-Commerce Participant is any person or business (seller or service provider) who sells goods or provides services through an e-Commerce platform.
Example: A restaurant selling food on Zomato, A shop selling clothes on Flipkart, A driver offering rides on Ola
TDS Deduction Rate: Latest Update
As per the Budget 2024 update, effective from 1st October 2024, the TDS on Payments by E-Commerce Operators to Participants has been reduced from 1% to 0.1%. The updated TDS rates are as follows:
| Period | TDS Rate |
|---|---|
| Before 1st October 2024 | 1% |
| On or after 1st October 2024 | 0.1% |
If the participant does not provide PAN, TDS will be deducted at a higher rate of 5% under Section 206AA.
Threshold Limit
TDS is applicable only if the gross amount of sales or services exceeds ₹5 lakh in a financial year for resident individuals and HUFs. For all other entities, TDS applies irrespective of turnover.
Applicability
- Section 194O applies only to resident e-commerce participants.
- Non-resident participants are exempt from this provision.
Exceptions
- No TDS is required if the participant provides a declaration under Section 197A confirming their income is below the taxable limit.
- No TDS applies if the total sales or services for a resident individual or HUF do not exceed ₹5 lakh in a financial year and PAN/Aadhaar has been provided.