CBDT Releases Guidelines for Deduction of Tax Under Section 194-O

CIRCULAR NO 20 of 2023, dated 28-12-2023

E-commerce operators (ECOs) are required to deduct income tax at a rate of one percent on the gross amount of sales facilitated through their digital platforms under Section 194-O. The CBDT has issued a circular outlining the tax deduction process in certain transactions, especially where multiple e-commerce operators are involved, such as through Open Network for Digital Commerce (ONDC).

a) Tax deduction where multiple e-commerce operators are involved in a transaction

There may be an e-commerce platform or network (such as ONDC) on which multiple e-commerce operators (ECO) are involved in a single transaction of sale of goods or provisions of services. For example, a buyer-side ECO provides an interface to the buyer, and a seller-side ECO provides an interface to the seller.

In this case, the seller-side ECO who finally makes the payment or the deemed payment to the seller for goods sold or services provided shall be liable to deduct tax. However, if the seller-side ECO is itself the seller, then the ECO who finally makes payment to it shall be liable to deduct tax.

b) Inclusion of convenience fees, delivery fees and commission in the gross amount

In e-commerce transactions, it is common for an order to be shipped to the buyer from the seller. It is, therefore, common for sellers to charge the buyer additionally for shipping in the form of logistics/delivery/shipping/packaging fees, etc. Further, the buyer-side ECO and seller-side ECO may charge the seller a commission/convenience fee to enable the online transaction. The seller may choose to recoup all or part of that amount from the buyer. The CBDT has clarified that these charges shall be a part of the gross amount on which tax is required to be deducted.

Further, payments made to the platform or network provider (such as ONDC) for facilitating the transaction would form part of the “gross amount” if they are included in the payment for the transaction. However, if these payments are being paid on a lump-sum basis and are not linked to a specific transaction, then these need not be included in the “gross amount”.

c) Treatment of discounts offered by the seller

Where the seller gives the discount, the seller would reduce the price of the products sold or services provided. For instance, if the price of a product is Rs 100 and the seller offers a discount of Rs 10. Rs 90 will be receivable from the buyer. In this case, the seller will invoice the buyer for Rs 90. Hence, tax shall deducted on the amount of Rs 90.

d) Treatment of discounts offered by e-commerce operators

Where the buyer ECO or seller ECO gives a discount, usually the seller receives full consideration for the product. The seller receives part of the amount from the buyer, and the balance is discharged to the seller by the buyer ECO or seller ECO, as the case may be.

For example, if the price quoted by the seller is Rs 100, and the buyer ECO gives a discount of Rs 10, Rs 90 (i.e. 100 -10) will be collected from the buyer and remitted to the seller. The buyer ECO will pay the remaining Rs 10 to the seller via the seller ECO. The invoice for the buyer will be raised for Rs 100, and the seller-side ECO will, therefore, deduct tax on Rs 100, which is the gross amount of sales.

e) Treatment of GST or various state levies and taxes

When the tax is deducted at the time of credit of the amount in the account of the seller and the component of GST or various state levies and taxes is indicated separately in the invoice, tax shall be deducted on the amount credited without including such GST or tax component. However, if the 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 GST or tax component of the amount to be invoiced in future.

f) Adjustment in relation to Purchase Return

It is noted that the tax is required to be deducted under section 194-O at the time of payment or credit, whichever is earlier. Thus, before purchase-return happens, the tax must have already been deducted from that purchase.

The CBDT has clarified that where the seller has refunded the money against the purchase return, the tax deducted may be adjusted against the next purchase against the same seller in the same financial year. However, where purchase return is replaced by the goods, no adjustment is required.

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