Section 194-O

Section 194-O — the law in short

What the courts have decided on section 194-O, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Vijaya Agro Traders v ITO High CourtHelps taxpayerNo later treatment found
  The faceless unit has disallowed my purchases for not deducting under s.194Q and has said nothing at all about the Board's circular I quoted in my reply. Is that enough to get the order set aside?
  Yes. The Karnataka High Court set aside an order under s.143(3) read with s.144B, made in a s.194Q scrutiny, on the single ground that CBDT Circular No. 13/2021 had not been considered or appreciated by the assessing unit, and remitted the matter for fresh consideration in the light of that circular. Guidelines issued under s.194Q(3) are issued with the approval of the Central Government and the officer is not free to pass over them in silence.
• Mjunction Services Ltd v Union of India High CourtHelps taxpayerNo later treatment found
  We run an e-auction platform. Buyers pay the sellers directly and no sale consideration passes through us. Are we still bound to deduct under s.194-O on the gross amount, and is there any way to raise the difficulty with the Board?
  The point has not been decided, but the Calcutta High Court treated the difficulty as real and gave two things a platform in this position needs. It directed the CBDT to dispose of the operator's representations under s.194-O(4) by a reasoned and speaking order within six weeks after a hearing, and in the meantime directed that the operator continue to deposit the TDS it actually receives from participants and that it not be treated as in default until those representations are decided. Counsel for the Revenue could not justify the Board's inaction on representations pending since December 2020.
• Gopikishan Pallod v. ITO, Ward 7(1), Hyderabad (ITAT Hyderabad) — the Central Processing Centre cannot cut section 194-O credit proportionately because the platform deducted on gross sales while the seller reported net of returns ITATHelps taxpayer
  I sell on a marketplace. The operator deducted under section 194-O on my gross sales, but I reported turnover net of sales returns, and the CPC has allowed me only proportionate TDS credit under Rule 37BA. How do I get the rest?
  By reconciling the difference and showing that the whole of the income relatable to the TDS credit has been offered to tax. The Tribunal held that the Assessing Officer had misunderstood the facts, that gross sales less sales returns tallied with the net turnover declared, and that the Assessing Officer ought to have allowed the full credit of Rs 1,62,412 as per Form 26AS; the Commissioner (Appeals)'s contrary reasoning was based on assumption and presumption, not on fact.
• Statutory position — s.194-O: the e-commerce operator's rate fell from one per cent to 0.1 per cent on 1 October 2024, and sub-section (3) shuts out every other TDS section CBDT Circulars & InstructionsCuts both ways
  I sell through a marketplace and the operator is deducting under section 194-O. What is the rate now, when does the five lakh exemption apply, and can the operator also deduct under section 194H or 194J on the same transaction?
  The rate is 0.1 per cent of the gross amount of the sales or services, substituted for one per cent with effect from 1 October 2024. No deduction is made where the e-commerce participant is an individual or Hindu undivided family whose gross amount of such sale or services during the previous year does not exceed five lakh rupees and who has furnished PAN or Aadhaar to the operator. And sub-section (3) provides that a transaction on which the operator has deducted under sub-section (1), or which is not liable to deduction because of sub-section (2), shall not be liable to tax deduction at source under any other provision of Chapter XVII-B — subject to a proviso that takes advertising and other services unconnected with the sale out of that shelter.
• Statutory position — s.194-O: the e-commerce operator's rate fell to 0.1 per cent on 1 October 2024 CBDT Circulars & InstructionsCuts both waysNo later treatment found
  What rate does an e-commerce operator deduct now, when is a small seller outside the section, and does the Board's guidance bind me?
  0.1 per cent of the gross amount of the sale or services, for anything on or after 1 October 2024; one per cent before that. No deduction is required where the e-commerce participant is an individual or HUF whose gross sales or services through the platform in the previous year do not exceed five lakh rupees and who has furnished PAN or Aadhaar to the operator. Guidelines issued by the Board under s.194-O(4) bind the income-tax authorities and the e-commerce operator alike.
• Statutory position — s.197: the Assessing Officer may certify a lower rate, or nil, for a listed section, but only on the payee's application and only for a period of the previous year — the 1961 Act position, for deductions up to 31 March 2026 CBDT Circulars & InstructionsCuts both ways
  My money is stuck. Every invoice I raise has tax deducted at the full rate, my actual tax for the year is far less than the deductions, and I only get it back a year later when the refund comes. Somebody told me to apply for a lower-deduction certificate under section 197. What does section 197 actually say — which payments does it cover, what does the Assessing Officer have to be satisfied about, what form do I file, and can the certificate be backdated to cover the deductions already made?
  Section 197(1) lets the payee apply to the Assessing Officer for a certificate that the payer may deduct at a lower rate, or not at all. It is not open-ended: it works only for the sections named in it, and the Assessing Officer must be satisfied that “the total income of the recipient justifies” the lower rate. The list is sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J, 194K, 194LA, 194LBA, 194LBB, 194LBC, 194M, 194-O, 194Q and 195 — 194LBA was added by Act No. 8 of 2023 with effect from 1 April 2023 and 194Q by Act No. 15 of 2024 with effect from 1 October 2024. Section 197(2) then binds the payer: once a certificate is given, he deducts at the certified rate, or nothing, until the Assessing Officer cancels it. Section 197(2A) is the rule-making power, and the rules made under it are rule 28 (application in Form No. 13, filed electronically), rule 28AA (how the rate is worked out and how long the certificate lasts) and rule 28AB (a no-deduction certificate for trusts and other section 139(4C) filers). Nothing in the section or the rules confers a power to backdate a certificate, and in substance it operates forward: rule 28AA(4) sends it to the named deductor, who cannot un-deduct months already past. From 1 April 2026 this machinery is gone — the Income-tax Act, 1961 was repealed by section 536 of the Income-tax Act, 2025 and the successor is section 395 of the 2025 Act, applied for in Form No. 128 under rule 213 of the Income-tax Rules, 2026, and from the same date section 395(6) lets that application go to a prescribed income-tax authority instead of the Assessing Officer.
• Statutory position — section 139AA(2) and rule 114AAA: what an inoperative PAN actually does, and the CBDT circulars that undo it CBDT Circulars & InstructionsCuts both ways
  CPC has raised a short-deduction demand on me because my payee's PAN was inoperative for want of Aadhaar linking. What exactly does an inoperative PAN do, and is there any Board relief?
  An inoperative PAN carries four consequences and only four, and rule 114AAA(3) lists them: no refund of tax is made, no interest is payable on that refund for the period, tax deductible under Chapter XVII-B is deducted at the higher rate under section 206AA, and tax collectible under Chapter XVII-BB is collected at the higher rate under section 206CC. The third and fourth of those fall on the DEDUCTOR or COLLECTOR, not on the person who failed to link, which is why the demand lands on someone who did nothing wrong. The Board has issued a sequence of circulars relieving the deductor where the PAN is made operative by a date, and the sequence — Circular No. 3/2023 dated 28 March 2023, Circular No. 6/2024 dated 23 April 2024 and Circular No. 9/2025 dated 21 July 2025 — is the first thing to check, before any argument on merits.
• Statutory position — section 194S: one per cent on payment for transfer of a VDA, from 1 July 2022 CBDT Circulars & InstructionsCuts both ways
  We are paying for crypto bought from an Indian seller. Do we deduct tax, at what rate, and is there a threshold below which we can ignore it?
  Yes, from 1 July 2022. Section 194S requires any person responsible for paying a resident any sum by way of consideration for transfer of a virtual digital asset to deduct one per cent of that sum, at the time of credit to the resident's account or at the time of payment, whichever is earlier. No tax is deducted where the payer is a 'specified person' and the value or aggregate value of the consideration does not exceed Rs 50,000 during the financial year, or where the payer is anyone else and it does not exceed Rs 10,000 during the financial year. Where the consideration is wholly in kind, or is a swap of one VDA for another, or the cash part is not enough to fund the deduction, the payer must ensure the tax has been paid BEFORE releasing the consideration.
• Statutory position — section 206AA, sub-section (7) and rule 37BC: the twenty per cent rate, the five per cent provisos, and the non-resident's way out CBDT Circulars & InstructionsCuts both ways
  My non-resident payee has no PAN. Must I deduct at twenty per cent, and is there any prescribed alternative?
  Section 206AA(1) requires a deductee to furnish his permanent account number, failing which tax is deducted at the higher of the rate specified in the relevant provision, the rates in force, or twenty per cent — but two provisos substitute five per cent for twenty where the deduction is under section 194-O or section 194Q. Sub-section (7) disapplies the section altogether to a non-resident not being a company and to a foreign company in respect of interest on long-term bonds under section 194LC and any other payment subject to prescribed conditions, and rule 37BC prescribes those conditions. Under rule 37BC(1) the section does not apply to interest, royalty, fees for technical services, dividend and payments on transfer of any capital asset if the deductee furnishes the four items in sub-rule (2) to the deductor.
• CBDT Circular 13/2021 CBDT Circulars & InstructionsCuts both ways
  Our purchase attracts both 194Q and 206C(1H). Do we deduct as buyer or does the seller collect?
  The buyer deducts. Where both provisions are capable of applying to the same transaction, the buyer's obligation under s.194Q prevails and the seller need not collect under s.206C(1H); if the seller has already collected before the buyer deducts, the transaction is not taxed twice, both rates being 0.1%.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.