Taxability of E-commerce Transactions: Comparison of TDS vis-à-vis Equalisation levy -

 Overview and comparison of 194O, 165-165A: -

There has been prescribed different layers of criteria for determination of taxability with reference to E-commerce related or say digital transactions. We shall have an in-depth discussion of all such provisions and obtain understanding of fact that when which provision be attracted:

 

Section 194O (Income Tax Act,1961): TDS on certain payment by E-commerce operator to E-commerce Participant –

 

While any person supplying goods/services/both is enrolled on any e-commerce platform for supply therewith, then e-commerce operator be liable to deduct TDS @ 1%, on gross amount payable by him to such person enrolled as e-commerce participant, in reference to sales conducted via its platform and then only shall he release the net amount of sale proceeds collected from customer, in favor of participant. Such TDS be deducted either at time of credit of such amount to e-commerce participant’s account or at time of actual payment to participant, whichever is earlier. Also, whereincase any payment is directly made by customer/buyer to participant, still it be deemed assumed that said payment is being done by e-commerce operator and accordingly be added to gross amount of sale, on which e-commerce operator is bound to deduct TDS as aforementioned.      

However, note that such TDS is not to be deducted in case participant is in nature of individual/HUF as assessee and that, gross value of goods/services/both sold by him/it does not exceed Rs. 5 Lakh in concerned previous year, provided he/it has furnished his PAN/Aadhar number to e-commerce operator.

Further, once either TDS is deducted on any transaction, under this section or that, if it is exempted in a manner as referred above, then TDS be not deducted on the said transaction under any other section.

Only exception to such non-deduction criteria be the case when e-commerce operator has performed such transaction for hosting advertisement or providing any other service not relating to goods/services.

 

Section 165 (Finance Act,2016): Charge of Equalisation Levy on ‘Specified Services’ –

Equalisation levy is to be deducted under this section @6%, on amount paid/payable for ‘Specified Services’ identified hereunder, by buyer only if the criteria listed hereafter are being sufficed –

·     Specified Services: Such service shall include- i.) Online Advertisement services; ii.) Provision for digital advertising space or other service/facility for online advertisement; iii.) Other such services as be notified by Central Government;

·       Service is rendered by: Non-resident person;

·    Service is availed by: Resident person carrying on business/profession in India or Non-resident person having Permanent establishment in India;

 

However, equalisation levy is not liable to be deducted under this section if –

i.  Non-resident providing such service already have a permanent establishment in India and services so rendered are related to said PE;

ii. Aggregate amount of consideration for services so rendered by non-resident in whole previous year does not exceed the threshold of Rs. 1 Lakh;

iii.   Where payment to be made for any such services availed by person resident in India or having PE in India, is for purpose other than that of business/profession

 

Section 165A (Finance Act,2016): Charge of Equalisation Levy on E-commerce supply/services –

Equalisation levy is to be collected under this section @2%, on amount received/receivable for supply/services rendered by non-resident e-commerce operator either not having PE in India or if has PE in India only if said supply/services are not related to such PE, in relation with services rendered to –

i.  Person resident in India; or

ii. Non-resident, only in specified circumstances; or

iii.   Person who buys goods/services/both using IP address located in India.

 

For purpose of above section, below terms/phrases shall have meaning as assigned to them hereunder: -

1.    Specified Circumstances: i.) sale of advertisement, which targets a customer, resident in India or a customer who accesses such advertisement via IP address located in India; ii.) sale of data, collected from a person who is resident in India or from any person who uses IP address located in India;

2. Consideration received/receivable for services rendered by e-commerce operator:  Such consideration shall include i.) consideration for sale of goods irrespective of fact if said goods are owned by e-commerce operator or not except in case it relates to sale of any such goods that are owned by other person resident in India or by PE of non-resident in India whereincase sale of goods relates to such PE only; ii.) consideration for provision of services irrespective of fact if said services are provided by e-commerce operator or not except on case it relates to sale of any such services that are provided by other person resident in India or by PE of non-resident in India whereincase provision of service relates to such PE only;

3.    E-commerce supply/services: a.) Online sale of goods owned by e-commerce operator; b.) Online provision of services by e-commerce operator; c.) online sale of goods or provision of services or both facilitated by e-commerce operator; d.) any combination of a/b/c, mentioned herewith.

 

However, equalisation levy is not liable to be collected under this section if –

i.  E-commerce operator rendering such supply/services has PE in India and that such supply/service is connected with such PE in India; or

ii. Equalisation levy already charged under section 165; or

iii.   Sales/Turnover/Gross Receipts of e-commerce operator from such supply/service is less than Rs. 2 crores in concerned previous year.

 

 

Note: - For purpose of equalization levy, permanent establishment shall have meaning, as attributed hereunder:

“a fixed place of business through which the business of an enterprise is wholly or partly carried on”

 

Quick Summary:

While TDS u/s 194O has more general applicability in context that any nature of person having enrolled with e-commerce operator, executes any sale via later’s platform for which later processes the whole transaction and collects payment from end-user, then the later shall before releasing such payment to enrolled participant deduct TDS as prescribed u/s 194O subject to condition and in a manner as may be prescribed therewith.

To the contrary, Equalisation levy (EL) has more specific applicability. EL u/s 165, which is in very nature of TDS be attracted only when certain specified nature of service as aforementioned have been rendered by non-resident to specified persons.

Whereas EL u/s 165A that is similar to TCS in its nature, be attracted in case, any non-resident e-commerce operator supply/renders service to specified persons or that if renders specified services to non-resident, for any business/profession in India.