Section 194-O was inserted in Income tax act, 2020 by virtue of Finance Act, 2020 which relates to Income tax on E-commerce participant for payment made through E-commerce operator.
CBDT vide circular 17 of 2020 Dt. 29.09.2020 has made various clarification with regard to section 194-O which is as under:
Non Applicability of section:
1. This section won’t apply on transaction on securities and commodities which are traded through recognised stock exchange or cleared and settled by recognised clearing corporations including recognised stock exchanges or recognised clearing coropration located in International Financial Service centre.
2. Transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with regulation 21 of the CERC.
Applicability on Payment gateway:
In e-commerce transactions, the payments are generally facilitated by payment gateways. It is represented that in these transactions, there may be applicability of section 194-O twice i.e. once on main commerce operator who is facilitating sell of goods or provision of services or both and once on payment gateway who also happen to qualify as e-commerce operator for facilitating service.
To illustrate a buyer buys goods worth one lakh rupees on e-commerce website “XYZ”. He makes payment of one
lakh rupees through digital platform of “ABC”. On these facts liability to deduct tax under section 194-O may fall on both “XYZ” and “ABC”.
In order to remove this difficulty, it is provided that the payment gateway will not be required to deduct tax under section 194-O of the Act on a transaction, if the tax has been deducted by the ecommerce operator under section 194-O of the Act, on the same transaction.
Hence, in the above example, if “XYZ” has deducted tax under section 194-O on one lakh rupees, “ABC” will not be required to deduct tax under section 194-O of the Act on the same transaction. To facilitate proper implementation, “ABC” may take an undertaking from “XYZ” regarding deduction of tax.
Applicability on insurance agent and insurance aggregator:
It has been represented that insurance agents or insurance aggregators in many cases have no involvement in transactions between insurance company and the buyer for subsequent years. It has been represented that in subsequent years, the liability to deduct tax may arise on the insurance agents or insurance aggregators even if the transactions have been completed directly with the insurance company. This may result into hardship for the insurance agents/aggregators.
In order to remove difficulty it is provided that in years subsequent to the first year, if the insurance agent or insurance aggregator has no involvement in transactions between insurance company and the buyer of insurance policy, he would not be liable to deduct tax under section 194-O of the Act for those subsequent years.
However, the insurance company shall be required to deduct tax on commission payment, if any, made to the insurance agent or insurance aggregator for those subsequent years under the relevant provision of the Act.
Calculation of threshold for Section 194-O:
Since the threshold of five lakh rupees for an individual/ Hindu undivided family (being ecommerce participant who has furnished his PAN/Aadhaar) is with respect to the previous year, calculation of amount of sale or services or both for triggering deduction under section 194-O of the Act shall be counted from 1st April, 2020.
Hence, if the gross amount of sale or services or both facilitated till 30.09.2020 in relation to such an individual/ Hindu undivided family exceeds five lakh rupees, the provision of section 194-O shall apply on any sum credited or paid on or after 1st October, 2020.
Thus, in the above circular the following points were clarified by CBDT with regard to section 194-O, to read full circular CLICK HERE.