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

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.

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