Direct Tax Alert

The Central Board of Direct Taxes (CBDT) had previously issued guidelines clarifying the application of this provision. However, in response to industry representations, additional clarifications have now been provided to address complexities in multi-ECO transactions, additional service charges, GST treatment, purchase returns, and discount adjustments.

We at KRC, have analyzed and summarized the key provisions of the said circular.

Key Clarifications in the Latest Circular

1. TDS in Case of Multiple E-Commerce Operators
With the rise of platforms like Open Network for Digital Commerce (ONDC), multiple ECOs may be involved in a single transaction, leading to ambiguity regarding TDS responsibility.

Scenario 1: Multiple ECOs, Seller-Side ECO Not the Actual Seller

• If the seller-side ECO is not the actual seller, the ECO making the final payment to the seller (or deemed payment) is responsible for deducting TDS at 0.1% on the gross sale value

Scenario 2: Multiple ECOs, Seller-Side ECO is the Actual Seller

• When the seller itself is an ECO, the buyer-side ECO provides the interface, and the seller-side ECO interacts directly with buyers.
• Here, the ECO making the final payment to the seller must deduct TDS at 0.1% on the total sales amount.

2. TDS on Additional Charges (Convenience Fees, Logistics, Delivery Fees, etc.)

• The TDS deduction must be on the “gross amount” invoiced to the buyer.
• Any charges levied by the seller, seller-side ECO, or buyer-side ECO (such as packaging fees, logistics, convenience fees) are included in the taxable base for TDS deduction.

Illustration:
A buyer purchases goods worth ₹100 and pays additional charges:

• Packaging Fees: ₹5
• Shipping Fees: ₹10
• Convenience Fees: ₹5 (including ₹3 charged by buyer ECO, ₹2 by seller ECO)
• Total Invoice Value: ₹120

TDS under Section 194-O will be deducted on ₹120 at the revised rate of 0.1%

3. No Double TDS on ECO Service Fees

• If TDS under Section 194-O is applied, no additional TDS will be applicable under other sections (e.g., 194H – Commission TDS), except for virtual digital assets (VDA) under Section 194S.
• If the ECO charges a lump-sum fee unrelated to specific transactions, it is not included in the TDS base.
  Illustration:
  A seller lists a product at ₹85, while the seller-side and buyer-side ECOs charge ₹10 and ₹5, respectively.
• The seller invoices the buyer for ₹100 (₹85 + ₹10 + ₹5).
• TDS will be deducted on ₹100 at 0.1%.

4. Treatment of GST and Other Indirect Taxes

• GST separately mentioned in the invoice is excluded from the “gross amount” for TDS if the deduction is made at the time of credit.
• 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.
  Illustration:
• If GST is separately shown and TDS is deducted upon credit, TDS applies only to the pre-GST amount.
• If TDS is deducted upon payment, TDS applies to the total amount (including GST).

5. Adjustment of TDS in Case of Purchase Returns

• If goods are returned after TDS has been deducted, the TDS can be adjusted against the next purchase from the same seller in the same financial year.
• If the purchase is replaced instead of refunded, no TDS adjustment is needed.
  Illustration:
• A seller sells goods worth ₹10,000, and ₹100 (0.1%) TDS is deducted.
• If the buyer returns goods worth ₹6,000, the seller can adjust ₹60 TDS against a future sale to the same buyer in the same financial year.

6. Treatment of Discounts Given by Seller or ECO

Seller-Provided Discounts

• If a seller provides a direct discount, the TDS applies to the net invoiced amount.

Discount by Buyer-Side or Seller-Side ECO

• If the discount is funded by an ECO, the seller receives full consideration.
• In this case, TDS applies to the full gross amount before discount at 0.1%
  Illustration:
• A product is listed at ₹100, and the buyer ECO gives a ₹10 discount.
• The buyer pays ₹90, and the ECO pays ₹10 to the seller.
• TDS applies on ₹100 (gross amount) at 0.1%.

KRC Insights on CBDT’s Guidelines
The additional clarifications provided by CBDT are a welcome move, as they:

• Provide certainty on TDS treatment in multi-ECO transactions (such as ONDC).
• Prevent double taxation by stipulating the ECO finally making the payment to the seller on service fees charged by ECOs
• Ensure fairness in discount treatments, maintaining clarity on taxable values.
• Clarify GST applicability, avoiding tax disputes due to indirect tax inclusion.
• Allow adjustments for purchase returns, simplifying compliance.