On 28 December 2023, the Central Board of Direct Taxes (CBDT) issued guidelines clarifying the deduction of withholding tax in e-commerce transactions under Section 194-O of the Income-tax Act, 1961. The details of the guidelines are outlined as follows:

  • Who is responsible for withholding tax at the source in transactions involving multiple e-commerce operators:
    • If the seller-side ECO is not the real vendor of the goods or services, the obligation to comply with Section 194-O lies with the seller-side ECO responsible for making the actual payment or deemed payment to the seller for the sold goods or provided services.
    • If the seller-side ECO is indeed the genuine vendor of the goods or services, the responsibility for compliance lies with the ECO, which ultimately executes the payment or deemed payment to the seller for the sold goods or provided services.
  • Commissions, convenience fees, logistic charges, and delivery fees are required to be encompassed in the calculation of withholding tax within the “gross amount.”
  • Deductions for seller discounts (excluding discounts provided by a buyer-side ECO or seller-side ECO) should be considered when determining the gross amount for the products sold or services rendered.
  • Withholding tax will be deducted from the credited amount, excluding GST and other taxes applicable to the sale of goods or services, as long as these taxes are explicitly stated in the invoice.
  • How will adjustments for returns on purchases be carried out:
    • Before a purchase return occurs, the tax should have already been deducted pursuant to Section 194-O for that purchase. In such instances, if a refund is issued, the deducted tax can be adjusted against the subsequent transaction within the same financial year between the deductor and the same deductee. Additionally, the tax deducted and deposited will be credited to the seller. No adjustment is necessary if the purchase return is replaced by goods, as the transaction for which tax was deducted under Section 194-O is considered complete with the replacement of goods.