Imposition of TDS/TCS: What would be the impact on online transactions?

Along with making tax deducted at source (TCS) mandatory on remittance of loan for foreign education and overseas tough packages as well, the Finance Act also introduced Section 194-O under the Income Tax Act, 1961 (‘the Act’) which imposes 1 per cent withholding tax (a concessional rate of 0.75 per cent till March 31, 2021) on payments made by e-commerce operators to e-commerce participants and such rate would be enhanced to 5 per cent in the absence of PAN or Aadhaar.

However, there is a minimum threshold, below which limit, the provisions of Section 194-O will not be applicable.

“Exemption from such tax deduction has been provided in case of the e-commerce participant is an Individual or HUF where the gross amount of sale or services or both during the previous year is upto Rs 5 lakhs and such e-commerce participant has furnished his PAN or Aadhaar number to the e-commerce operator,” said Dr. Suresh Surana, founder, RSM India.

The CBDT has vide Circular 17 of 2020 clarified certain aspects in the deduction of tax u/s 194-O. In case of e-commerce transactions, it has been clarified that a payment gateway would not be required to deduct TDS provided the e-commerce operator has already deducted the tax on the same transaction.

Further, Section 206C(1H) requires a person whose total sales, gross receipts or turnover exceeds Rs 10 crore in the financial year immediately preceding the financial year of sale to collect tax on sale of goods @ 0.1 per cent (concessional rate of 0.075 per cent applicable from October 1, 2020 to March 31, 2021) of the consideration on the value exceeding Rs 50 lakhs in a financial year and such rate would be enhanced to 1 per cent in the case of absence of PAN or Aadhar.

“It has been clarified that the amount to be considered for the purpose of TCS would be the gross amount including GST, if any,” said Dr. Surana.

Also, the CBDT has via Circular 17 of 2020 clarified in case of both sections 194-O and 206C(1H) for the purpose of calculation of threshold, the said sections shall not apply on any sale consideration received before 01-10-2020. Consequently, it would apply on all sale considerations (including advance received for sale) received on or after 01-10-2020 even if the sale was carried out before 01-10-2020. The TCS shall be applicable on the sales consideration exceeding Rs 50 lakhs during the year.

“Though the amount of TDS/TCS would be available as a credit while filing the income tax return, such imposition of TDS and TCS imposes an additional burden of compliances,” Dr. Surana concluded.