BackTDS on e-commerce firms effective from 1 October
A separate provision also asks every seller with more than ₹10 crore sales in the year before, to collect 0.1% of the sale consideration above ₹50 lakh as income tax (TCS) at the time of receiving the payment
PremiumBengaluru/New Delhi: E-commerce platforms such as Amazon India and Flipkart are required to deduct income-tax (TDS) at the rate of 1% of the gross amount paid to the seller using the platform for sales, starting 1 October.
A separate provision also asks every seller with more than ₹10 crore sales in the year before, to collect 0.1% of the sale consideration above ₹50 lakh as income tax (TCS) at the time of receiving the payment.
The TDS and TCS provisions on e-commerce were brought in through the Finance Act of 2020 as part of efforts to gather more data about transactions in the economy for effective tax administration.
Ajay Rotti, partner, Dhruva Advisors LLP said the the clarification issued gives a big miss on treatment of sales returns and discounts. The ask of the industry was to permit a reduction of sales returns and discounts from the amount on which TDS was to be applied.
“…This was in line with the real income theory and accounting aspects of what constitutes a turnover. The circular clarifies that these cannot be adjusted for the purposes of TCS but remains silent on TDS on e-commerce operators. This was an obvious ask for clarification which has been missed in the FAQs. It will impact the working cash flow of sellers specially MSMEs," Rotti said.
On e-commerce TDS, the most significant uncertainty is around treatment of subsequent returns of goods by customers and consideration of discount codes and gift vouchers for computing amounts to be subject to TDS. Foreign e-commerce operators also need to comprehend the interplay between Section 194-O and Equalisation Levy when supply of goods or provision of services encompasses resident e-commerce participants.
A spokesperson for Flipkart, which works with lakhs of MSMEs, said the latter needs to be supported with a liberal tax compliance regime which does not impact cash flows adversely for these small businesses (such as doing away with 1% TDS on gross consideration of each sale where these online sellers already pay TCS, to ease out the impact of blocked working capital).
“Rationalization of compliance requirements for sellers under various laws would also go a long way in enhancing the ease of doing business for MSME sellers online and help them contribute to the economic growth in the country. Quick implementation of these measures will enable lakhs of MSMEs to make a stronger comeback in the upcoming festive season and help the overall economy as well as bringing more optimism and positivity," the Flipkart spokesperson said.
Rotti added that the clarification provides that exemption threshold applies from 1 April onwards, as a measure to build simplification and ease in compliance, the exemption threshold could have been applied starting 1 October and TDS being applied on the amounts exceeding the threshold.
“…This FAQ being released 1 day before implementation has further increased complexities for the industry," he said.
Sandeep Jhunjhunwala, partner, Nangia Andersen LLP said the current circular under TCS under Section 206(1H) on aggregate sale of goods worth above ₹50 lakh in a year clarifies on several puzzling aspects such as no adjustment for sales return, discount or GST component and applicability on receipts post 1 October, even if sales was made before that period.
“Clarity regarding liability of the person responsible for TDS in cases where multiple e-commerce operators are involved in transaction such as use of third-party electronic payment gateways in settlement of e-commerce transaction has been brought in," Jhunjhunwala added.
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