CBDT issues guidelines on TDS liability on ONDC transactions

New Delhi: The Central Board of Direct Taxes (CBDT) on Thursday clarified that the 1% tax deducted at source (TDS) on e-commerce sales will apply on the entire transaction value including charges and fees levied by different e-commerce operators in the Open Network Digital Commerce (ONDC) on the side of the buyer and seller of goods and services.

CBDT issued a set of guidelines on the TDS liability on e-commerce sales introduced in 2020 as the ONDC network has now taken off and multiple e-commerce platforms and buyers and sellers listed on them take part in completing a single transaction executed through the network.

TDS liability will cover the gross amount of transaction including the packaging and shipping fee as well as the convenience fee levied by the e-commerce platforms on the side of both the buyer and the seller, the guidelines said. TDS is deducted by the seller side e-commerce operator at the time of payment or credit. The seller side e-commerce platform will also file the TDS return and issue a certificate to the seller.

The guidelines cover various scenarios of e-commerce transactions to explain the liability of TDS on the gross transaction amount and the responsibility of operators to collect the tax and pay it to the government. The guidelines seek to bring clarity on taxation of e-commerce through ONDC. The government is keen to promote this network which has the potential to break the barriers in e-commerce activities undertaken by individual platforms, connect buyers and sellers across platforms and revolutionize the digital economy.

The guidelines also cover how the tax will apply in the case of returned purchases. TDS is required to be deducted at the time of payment or credit to the seller by the platform, whichever is earlier. "Thus, before purchase-return happens, the tax must have already been deducted under section 194-O of the Income Tax Act on that purchase. If that is the case and against this purchase-return, the money is refunded, then this tax deducted if any may be adjusted against the next transaction by the deductor with the same deductee in the same financial year. Further, the tax deducted and deposited will be allowed as credit to the seller," the guidelines said. No adjustment is required if the purchase-return is replaced by goods.

Even in the case of discounts provided to the seller by e-commerce operators, the gross amount will be taken for TDS purposes, the guidelines said.