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No Need For Payment Gateways To Deduct Tax If Ecommerce Platform Does It, Says CBDT

No Need For Payment Gateways To Deduct Tax If Ecommerce Platform Does It, Says CBDT

The CBDT in a circular said that etailers and payment gateways may have an understanding of its implementation

The Union budget had proposed to insert a new section 194-O to provide a new levy of TDS at the rate of 1%

Etailers had requested the government to clear the ambiguity over how new tax imposed in the 2020 Union budget will be levied

In a bid to make things easier for ecommerce enablers such as payment gateways as well as D2C brands, the income tax department on Tuesday (September 29), said that there is no need for payment gateways doing ecommerce transactions to cut taxes if the platform has already deducted it. This will come into effect from October 1, CBDT said.

CBDT’s reply has come in the light of a representation from Amazon, Flipkart, Bookmyshow and Facebook seeking clarity 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%. This was included in the Finance Bill, adopted by parliament on March 23 and it came into effect from April 1, 2020.

The industry stakeholders had earlier raised concerns on the double deduction of tax where the ecommerce operators who are facilitating the sale of goods or services or both, and once on payment gateways which also happen to qualify as ecommerce operators for facilitating the service.

While agreeing with the government’s proposal of levying 1% TDS (tax deducted at source), ecommerce companies including Amazon, Flipkart sought more time to implement the same.

However, earlier, they had shared their displeasure over the government’s proposal of TDS saying it was an increased burden for sellers on online marketplaces. They had also sought more clarity.

The Internet and Mobile Association of India (IAMAI) had also opposed the proposal and said that the mandate for ecommerce platforms to deduct TDS from sellers is an undue burden on them.

Earlier this year after the Union budget, ecommerce companies agreed to the government’s proposal of levying 1% TDS (tax deducted at source) on ecommerce transactions. However, companies including Amazon, Flipkart sought more time to implement the same.

The companies have reportedly said that they would need 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.”