TDS cut to make e-commerce attractive for merchants
The 25% reduction in tax deducted at source (TDS) on e-commerce participants from October will benefit merchants or sellers, said tax experts, adding that the reduced TDS on commissions will provide them with more working capital immediately.

However, sellers and e-commerce marketplaces still say that the TDS levy should be removed altogether as it will lock up liquidity and add to compliance costs. They also flagged that the government should clarify whether the deduction will be on gross or net sales.

“The reduction in withholding taxes across the board is probably a recognition that income of most tax payers stands reduced due to the shutdown due to Covid 19,” said Rohinton Sidhwa, partner at Deloitte India.

He added that the TDS reduction from 1% to 0.75% would make e-commerce platforms more attractive for sellers as they will pay a lower rate for only half of the ongoing financial year to the tax authorities.

“Reduction in TDS rates (on commissions) will help the cash flow situation for merchants, although they will need to pay taxes at regular rates while depositing advance tax,” said Gouri Puri, partner at law firm Shardul Amarchand Mangaldas & Co. E-commerce operators will still need to meet the compliance burden of withholding tax although at lower rate, she added.

TDS of 1% on e-commerce gross sales was introduced in the budget in February, aimed at bringing more online sellers and services providers under the tax net.

The move was opposed by e-commerce marketplaces such as Flipkart, Amazon and Snapdeal, who said the levy would create a working capital crunch for small sellers since marketplaces would have to deposit this TDS with tax authorities and sellers would have to make reimbursement claims for the same.

The announcement of TDS rate reduction by 25% was made by Finance Minister Nirmala Sitharaman on Wednesday as part of the Atma-nirbhar Bharat Abhiyan economic stimulus package.

Industry insiders however pointed out that the relaxations would not lead to any substantial immediate benefit for online sellers.

“It’s all hogwash. When they (government) introduced this we had said that TDS should be levied on the net and not on gross value of sales. They’ve not clarified that even now, and moreover this levy is applicable only from October,” said a top executive of a leading e-commerce marketplace.

Snapdeal and the All India Online Vendors Association (AIOVA) welcomed the TDS rate reduction on commissions from 5% to 3.75%, but still sought for more aid from the government to help drive a robust recovery of the sector.

“We would also like to request the government to remove the TDS requirement completely because while the deduction is small, it adds to the compliance and reconciliation burden for sellers, in addition to the liquidity impact,” a spokesperson from Snapdeal said.





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