CBDT issues further guidelines on withholding tax on e-commerce transactions involving multiple e-commerce operators and other issues

This Tax Alert summarizes Circular No. 20/2023 dated 28 December 2023 (Circular) issued by the Central Board of Direct Taxes (CBDT), which provides further guidelines for removing certain difficulties on application of tax deduction at source (TDS) on e-commerce transactions.

In the wake of representations received from stakeholders, the Circular provides the following additional clarifications on applicability of withholding tax on single transactions involving multiple e-commerce operators (EOPs) and other issues:

• Where a single transaction of sale of goods involves multiple EOPs, the EOP which is ultimately responsible for making payment to the seller of goods or the provider of services, is required to comply with TDS obligation.
• TDS on e-commerce shall be applicable on: (a.) Logistics, delivery fees or packaging fees which are charged by sellers from the buyer. (b.) Commission or convenience fees recouped by seller from the buyer, provided such amounts are part of gross sale price and included in the invoice raised on the buyer. If TDS on e-commerce is undertaken on such charges, the seller is not obligated to undertake TDS under any other provision of the Indian Tax Laws (ITL), except for TDS on virtual digital assets. 
• If the platform fee is not linked to a specific transaction but is paid on a lump sum basis, then the EOP is not required to undertake TDS on e-commerce on the said transaction and the seller shall be required to undertake TDS under other applicable provisions of the ITL.
• In respect of goods and services tax (GST) and indirect taxes (like value added tax /sales tax/excise etc.) which are applicable on transactions of sale of goods or provision of services through e-commerce: 
  • If TDS occurs at the time of credit to the account of the seller and the component of GST or indirect tax is indicated separately in the invoice, then TDS is to be made on the amount credited excluding such indirect tax.
  • If TDS occurs at the time of payment, then TDS is applied on the entire value of the amount paid as it is not possible to identify payment towards GST/indirect tax component for which invoice shall be raised in the future. 
    
• In case of purchase returns, the excess TDS on e-commerce already deducted on past transactions from which goods are returned by the buyer can be adjusted against future sales to be made by the same seller within the same financial year. No adjustment is required if the purchase return goods are replaced by fresh goods.
  
• Where the seller provides a discount on sale of goods and raises invoice on the net amount, TDS on e-commerce shall be undertaken on such net amount of the sale price. Where the EOP provides a discount to the buyer, TDS on e-commerce shall be undertaken on gross amount of the sale of goods or service, which includes the discount amount as the amount payable to the seller is the gross amount inclusive of such discount.