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Budget 2024: For online sellers, tax cuts offer relief, but not enough
- The Budgetary proposal to lower the tax deducted at source from online sellers will only offer incremental benefit as merchants and brands pay high commissions to e-commerce marketplaces.
The Union government’s proposal to reduce the tax deducted at source (TDS) for e-commerce operators provides relief to sellers and brands listed on online marketplaces such as Amazon and Flipkart, helping them generate additional savings on every order.
Finance minister Nirmala Sitharama in her Union Budget for 2024-25 announced slashing the TDS for e-commerce operators from 1% to 0.1%.
Although the lower tax rate offers only an incremental benefit as sellers pay high commissions to e-commerce marketplaces, the government’s decision has been well-received.
“Reducing the TDS rate and removing the equalisation levy are significant reliefs for online sellers, aimed at creating a favorrable environment for online transactions and enhancing global competitiveness,” said Anuraag Gambhir, managing director of e-commerce firm ShopClues.
A spokesperson for Amazon India said the “significant policy change promises substantial working capital relief for micro, small, and medium enterprises (MSMEs). By reducing the financial burden on these businesses, it not only facilitates ease of doing business but also strongly encourages the adoption of digital commerce”.
Per Section 194-O of the Income Tax Act 1961, online marketplaces have to deduct income tax on the gross income earned by facilitating the supply of goods and services. However, this does not apply if the gross amount of goods or services sold during the previous year is less than ₹5 lakh and if the seller has furnished their PAN or Aadhaar details.
The lower tax rate could help vendors and MSMEs free up working capital, said Ramesh Bafna, chief financial officer at quick-commerce firm Zepto.
“It’s certainly a plus point for sellers on marketplaces, especially smaller ones that don’t necessarily generate hefty daily revenue,” added Karan Taurani, an analyst at Elara Capital.
“This applies to a range of sectors, including ride-hailing firms that employ drivers and food delivery companies that engage with restaurants, which makes it a favourable outcome for players beyond the traditional online commerce ecosystem,” he said.
Online sellers still have to contend with the commissions of 10-30% that e-commerce platforms charge. “With brands paying a big portion of their revenue to platforms as commission, TDS is a rather insignificant part of their spends,” said Taurani, adding that e-commerce platforms are likely to remain indifferent to the development.
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First Published:23 Jul 2024, 05:33 PM IST
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