CBDT: Payment gateways won’t have to pay tax on e-commerce transactions under this scenario

Issuing guidelines for Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) on e-commerce transactions, the Central Board of Direct Taxes (CBDT) said that the payment gateway won’t have to deduct tax under section 194-O of the Income Tax Act on a transaction if it has been deducted by the e-commerce company. For example, according to CBDT’s circular issued on Tuesday, if a consumer buys goods worth X amount from an e-commerce company and pays through a payment gateway, since e-commerce payments are generally routed via such gateways, the liability currently under sector 194-O of the Act to deduct tax may fall on both the e-commerce company and the payment gateway.

However, with the clarification by the board, if the tax has been deducted by the e-commerce firm, then the payment gateway won’t have to do so. For this, the e-commerce company can also get an undertaking from the gateway for the tax deduction. The clarification was among the guidelines issued by CBDT on the applicability of 1 per cent TDS by e-commerce operators on sale of any goods and services from October 1, 2020, as per the 194-O section inserted into the Finance Act, 2020. The exemption, however, has been given to “certain individuals or Hindu Undivided Family fulfilling specified conditions”.

“A TDS on e-commerce transactions should not have a negative impact on bottom lines, as the TDS just serves as a red-flag to tax authorities to look out for future tax incomes. And overpayments, if any, are always adjustable. However, this will induce a compliance burden that might take a while to assimilate.” Utkarsh Sinha, Managing Director, Bexley advisors told Financial Express Online.

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The Act had also inserted a sub-section (1 H) in section 206C based on which a seller selling goods exceeding Rs 50 lakh in any previous year to collect tax from the buyer of goods “a sum equal to 0.1 per cent (subject to the provisions of proposed sub-section (lOA) of the section 206C of the Act) of the amount as income-tax at the time of sale effective October 1. CBDT also clarified that in transactions related to consumer buying insurance directly from one of the insurance companies selling products on an insurance aggregator platform, the liability to deduct tax would not be on the insurance aggregator or the insurance agent. The insurance company will have to deduct tax on any commission payment made to the agent or the aggregator. CBDT also included guidelines for applicability of the tax on transactions via different exchanges, sale of motor vehicles, adjustment for sale return, discount or indirect taxes etc.