The tax will be deducted before payments to vendors
The primary installment of the new tax is due in October and there may be some ambiguity over how it is going to be calculated
In February 2020, the companies had sought more time to upgrade their IT systems in order to enable them to collect the TDS from sellers
With the 1% tax on ecommerce transactions due in October, top digital corporations including Amazon, Flipkart, Bookmyshow and Facebook have requested the government to clear the ambiguity over how new tax imposed in the previous Union budget will be levied.
In a bid to widen and deepen the tax collection pool, the Union budget had proposed bringing ecommerce entities within the tax net. The budget proposed to insert a new section 194-O to provide a new levy of TDS at the rate of 1%.
According to an ET report, the companies need clear rules from the government for this tax, which they are to deduct before payments to vendors, and how certain transactions should be treated.
In February 2020, the companies had sought more time to upgrade their IT systems in order to enable them to collect the TDS from sellers.
The new section that includes the 1% tax says, “Where sale of goods or provision of services of an ecommerce participant is facilitated by an ecommerce operator through its digital or electronic facility or platform (by whatever name called), such ecommerce operator shall, at time of credit of amount of sale or services or both to the account of an ecommerce participant or at the time of payment thereof to such ecommerce participant by any mode, whichever is earlier, deduct income tax at the rate of 1% of the gross amount of such sales or services or both.”
“It would be useful if the government can issue FAQs on the applicability of these provisions to different situations because there are several open issues. For instance, it is not clear as to what kind of services would be covered in scope since the term ‘services’ can be very far-reaching,” Rajesh H Gandhi, a partner at Deloitte India told ET.
Meanwhile, a Flipkart spokesperson indicated that the proposal is being seen as an increased burden for sellers on online marketplaces. It would hurt micro, small and medium enterprises that sell their products on ecommerce sites by blocking their cashflows. “Some ways to further support MSMEs could include supporting them with a liberal tax compliance regime which does not impact cash flows adversely for these small businesses,” the spokesperson said.
This proposal comes at a time when traders associations, consisting of local traders, have been saying that ecommerce platforms like Amazon and Flipkart do not comply with FDI norms and offer deep discounts that put local vendors out of business.