With the number of vendors enrolling themselves with e-commerce platforms like Amazon on Flipkart, increasing day by day, this article finds its application and importance for such retailers.
We can back this fact up by a story we covered about Amazon Prime Day, spanning from August 6-7.
In this 2 day festive event, Amazon witnessed over 91,000 new registrations on its platforms from small and medium business (SMB) sellers: from artisans, to weavers and women entrepreneurs from all over the country.
While over 4000 of the registered sellers bagged sales of Rs10 lakhs or more (per seller), about 209 SMB sellers became crorepatis, in just the 2 day event.
Once you understand the heavy inflow of such retailers on online platforms, the gravity and importance of this particular article will make more sense to you.
Sellers to Receive Tax Cut by 1% TDS
According to the newly inserted section 194-O`in the Finance Act 2020, E-commerce operators (like Amazon, Flipkart, etc) will levy a 1% Tax Deducted at Source (TDS), on all transactions made to the E-Commerce participants/retailers, starting from October 1, 2020.
This section will be applicable for all e-commerce operators, whether Resident in India or Non-Resident in nature.
All such e-commerce operators while making payment to only ‘resident e-commerce participant/retailer’, for selling their goods/services to customers through the e-commerce operator’s platform, will charge a 1% TDS while paying the participant, in return of their goods/services.
What is the Need of this Newly Inserted Section?
Prior to the Section 194-0, e-comm operators did not deduct any tax while making payments to the designated seller. The whole amount was paid out.
This meant that the seller was individually required (expected) to file his/her income tax returns. However, this was not the case.
Many small and medium business sellers did not file their ITRs, hence escaping tax liabilities.
Who all are Exempted?
It is the e-comm operator’s duty to make payments to the sellers on its platforms, for their sales/services.
It should be noted that under Section 194-O, TDS must be deducted at the rate of 1% on the gross amount of sales of goods or services.
It will be applied while crediting the amount to the ecomm-participant either through an electronic mode of payment or directly.
However, this section can be exempted under 2 cases:
- The seller is an individual or HUF (Hindu Undivided Family) , with an aggregate gross sale of below Rs. 5,00,000 in the financial year, provided he/she has a PAN or Aadhaar furnished to the e-commerce operator, and/or
- Any payment which is liable to TDS under any other provision of the Act.
Also, please note that under Section 206AA, if a seller does not provide their PAN/Aadhaar to the e-comm operator, then the tax (TDS) deducted would be 5% instead of 1%, which is a 500% increase.