TaxTMI 
TaxTMI 
Legal Framework for TDS on E-commerce in India : Clause 393(1)[Table: S.No. 8(v)] and Clause 393(4)[Table: S.No. 11] of the Income Tax Bill, 2025, Vs. Section 194O of the Income-tax Act, 1961
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons, practical implications, and a comparative analysis with Section 194O. The aim is to elucidate the continuity, divergence, and evolution in the law, as well as to highlight interpretive issues and practical considerations for stakeholders. Objective and Purpose The primary objective behind the introduction of TDS provisions for e-commerce transactions is to bring within the tax net the growing volume of digital commerce, which was traditionally outside the purview of conventional TDS mechanisms. The rationale is twofold: * Widening the Tax Base: The government aims to minimize tax evasion or avoidance by ensuring that income accruing to e-commerce participants is reported and taxed at the source itself, thereby enhancing transparency and compliance. * Level Playing Field: By imposing similar obligations on e-commerce operators as on other intermediaries or payers, the law seeks to create parity between online and offline businesses. Section 194O was introduced by the Finance Act, 2020, effective from 1 October 2020, as a response to the exponential growth of e-commerce platforms and the challenges faced in tracking and taxing income generated through such channels. The p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons facilitated by the platform, even if payments are routed outside the platform, are subject to TDS. * Gross Amount: The deduction is on the gross amount, without netting off any commissions, fees, or other charges. Clause 393(4)[Table: S.No. 11] - Exemption from TDS for Small E-commerce Participants Text of the Provision: Payment by e-commerce operator to e-commerce participant referred to in section 393(1)[Table: Sl. No. 8(v)]. No deduction if the amount is credited or paid or likely to be credited or paid during the tax year to the account of an e-commerce participant, which is: (a) an individual or a Hindu undivided family; and (b) the gross amount of the sales or services or both during the tax year does not exceed Rs. 5,00,000; and (c) the e-commerce participant has furnished the Permanent Account Number or Aadhaar number to the e-commerce operator. Key Features: * Exemption Criteria: No TDS is required if all three conditions are satisfied: * The participant is an individual or HUF. * The gross amount of sales/services does not exceed Rs. 5,00,000 in the tax year. * PAN or Aadhaar is furnished to the operator. * Automatic Application: The exemption is self-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....: The tax authorities must process a large volume of low-value TDS transactions, potentially increasing workload. 4. For Buyers/Customers * No Direct Impact: While buyers are not directly affected, the cost of compliance may be passed on to them in the form of higher prices or service charges. Comparative Analysis with Section 194O of the Income-tax Act, 1961 1. Scope and Coverage * Both provisions apply to e-commerce operators facilitating sales of goods or services by residents through digital or electronic platforms. * The definition of e-commerce operator, participant, and the scope of "electronic commerce" remain substantially similar, ensuring continuity in coverage. 2. TDS Rate * Section 194O: Originally prescribed a 1% TDS rate, reduced to 0.1% from 1 October 2024. * Clause 393(1)[Table: S.No. 8(v)]: Prescribes a 0.1% TDS rate, aligning with the amended Section 194O. The reduction in rate reflects legislative sensitivity to concerns about working capital constraints for small sellers and the need to minimize the compliance burden while maintaining an audit trail. 3. Threshold and Exemptions * Section 194O(2): Exempts individual/HUF participants wit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to issue clarificatory guidelines, which are binding. * The Bill does not explicitly mention this, but such powers are generally available under the general administration provisions. 11. Definitions * Both regimes define "e-commerce operator," "e-commerce participant," and "electronic commerce" in similar terms, ensuring interpretive continuity. 12 Structure and Substance Aspect Section 194O of the Income-tax Act, 1961 Clause 393(1)[Table: S.No. 8(v)] and Clause 393(4)[Table: S.No. 11] of the Income Tax Bill, 2025 Applicability Sale of goods/provision of services by a resident e-commerce participant, facilitated by an e-commerce operator. Identical - sale/provision by participant via operator's digital/electronic facility. Person Responsible E-commerce operator. E-commerce operator. TDS Rate 0.1% of gross amount (w.e.f. 1 Oct 2024; earlier 1%). 0.1% of gross amount. Threshold No threshold - applies on all amounts unless exempted under sub-section (2). No threshold - applies on all amounts unless exempted under Clause 393(4)[11]. Exemption for Small Sellers No deduction if participant is individual/HUF, turnover <= Rs.....