Introduction:
E-commerce operators (ECOs) are now required to deduct one percent income tax on the total sales amount made through their digital platforms, according to Section 194-O. The Central Board of Direct Taxes (CBDT) has issued guidelines through a circular to explain the tax deduction process, especially in transactions involving multiple e-commerce operators on platforms like the Open Network for Digital Commerce (ONDC).
a) Tax Deduction in Transactions with Multiple E-commerce Operators:
In transactions where multiple e-commerce operators are involved (e.g., ONDC), the responsibility for tax deduction lies with the seller-side ECO making the payment to the seller. However, if the seller-side ECO is also the seller, then the ECO making the payment to it assumes the responsibility for tax deduction.
| Scenario | Responsible for Tax Deduction |
|---|---|
| Multiple ECOs involved, Seller-side ECO pays the seller | Seller-side ECO |
| Multiple ECOs involved, Seller-side ECO is also the seller | ECO making payment to the seller-side ECO |
b) Inclusion of Fees in Gross Amount:
Convenience fees, delivery fees, and commissions in e-commerce transactions are considered part of the gross amount subject to tax deduction. Payments to platform providers facilitating transactions (e.g., ONDC) are also included in the gross amount unless paid on a lump-sum basis unrelated to a specific transaction.
| Transaction Component | Included in Gross Amount |
|---|---|
| Convenience Fees, Delivery Fees, Commissions | Yes |
| Payments to Platform Providers | Yes (unless lump-sum) |
c) Treatment of Seller-Provided Discounts:
When a seller offers a discount, tax is deducted on the reduced amount that the buyer is invoiced. For example, if a product is priced at Rs 100 and the seller gives a Rs 10 discount, tax is deducted on the invoiced amount of Rs 90.
| Product Price (Rs) | Seller Discount (Rs) | Invoiced Amount (Rs) | Tax Deducted (1%) |
|---|---|---|---|
| 100 | 10 | 90 | 0.90 |
d) Treatment of ECO-Provided Discounts:
If the buyer or seller ECO provides a discount, tax is deducted on the gross amount paid to the seller. For example, if the seller quotes Rs 100, and the buyer ECO gives a Rs 10 discount, tax is deducted on the full Rs 100 paid to the seller.
| Seller's Quoted Price (Rs) | ECO-Provided Discount (Rs) | Gross Amount Paid to Seller (Rs) | Tax Deducted (1%) |
|---|---|---|---|
| 100 | 10 | 100 | 1.00 |
e) Treatment of GST and State Levies:
Tax is deducted on the amount credited to the seller's account without including the GST or state levies if separately indicated in the invoice. If tax is deducted on a payment basis, it's on the whole amount as it's not possible to identify the GST or tax component for future invoices.
| Payment Timing | GST/State Levies Indicated Separately | Tax Deducted (1%) |
|---|---|---|
| At Credit | Yes | On Amount (excluding GST/Levies) |
| At Payment | N/A (lump-sum) | On Whole Amount |
f) Adjustment for Purchase Return:
Tax must be deducted at the time of payment or credit, whichever is earlier. If a purchase return occurs, and the seller refunds the money, the deducted tax can be adjusted against the next purchase from the same seller in the same financial year. No adjustment is needed if the purchase return is replaced by goods.
g) Inclusion of Convenience Fees, Delivery Fees, and Commission in Gross Amount:
In e-commerce transactions, charges such as convenience fees, delivery fees, and commissions are considered part of the gross amount on which tax is required to be deducted. Payments made to the platform or network provider (e.g., ONDC) for facilitating the transaction are included in the "gross amount" if they are part of the payment for the transaction. However, if these payments are made on a lump-sum basis and are not linked to a specific transaction, they need not be included in the "gross amount."
h) Treatment of Discounts offered by the Seller and E-commerce Operators:
- When a seller gives a discount, tax shall be deducted on the invoiced amount after the discount is applied.
- When an e-commerce operator (ECO) provides a discount, tax shall be deducted on the gross amount paid to the seller. The invoice for the buyer will be raised for the full amount, and the tax will be deducted on the entire gross amount.
i) Treatment of GST or Various State Levies and Taxes:
- If tax is deducted at the time of credit of the amount in the seller's account, and the GST or state levies are indicated separately in the invoice, tax shall be deducted on the amount credited without including the GST or tax component.
- If tax is to be deducted on a payment basis because the payment is made earlier than the credit, the tax would be deducted on the whole amount as it is not possible to identify that payment with the GST or tax component of the amount to be invoiced in the future.
These guidelines aim to provide clarity on the tax deduction process in e-commerce transactions, ensuring compliance with Section 194-O of the Income Tax Act
