Union Budget 2020: New tax clause to hit e-commerce sellers

Delhi: Third party sellers on e-marketplaces may face liquidity squeeze as the government introduced a new withholding tax on e-commerce transactions in the union budget. Essentially, companies like Amazon India and Flipkart will withhold an additional 1% tax-deduction-at-source (TDS) while making payments to merchants who sell goods on their platforms. This would be in addition to the GST tax deduction that e-tailers charge online sellers.
While this would not impact consumers in terms of final pricing of products on e-commerce platforms immediately, the new 1% TDS would make sellers work around their working capital arrangements –to buy or source goods to sell online. “The tax at 1% is required to be deducted on the gross amount of such sales or service or both,” the finance bill said following the finance minister’s budget speech. It is not clear if these norms are expected to impact restaurants on online food delivery platforms like Zomato and Swiggy and service professionals on platforms like Urban Company.
This will not be applicable to those with an annual gross sale of less than Rs 5 lakh and who can furnish their Permanent Account Number (PAN) or Aadhaar number to the e-commerce operator. For those over gross sales of over Rs 5 lakh, this TDS would be deducted at 5% if they do not furnish their PAN or Aadhaar number.
“Working capital will be affected due to this. We had supported 1% tax collection under GST despite marketplace opposition and we had recommended application of 1% TDS under the Income Tax Act as inserted today as section 194-O. However, we had also sought relaxation from the technical application of section 194H due to which we have to deduct TDS on marketplace services and claim back from marketplaces. The new provision would be welcome only with the relaxation of existing provisions,” said a spokesperson of All India Online Vendors Association, which represents a group of small online sellers.

Government E-Market sets Rs 3 lakh crore target
Government e-Marketplace (GeM) is targeting a total turnover of Rs 3 lakh crore, the finance minister said in her budget though a timeline was not specified. The marketplace had reached Rs 45,464 crore turnover as of latest data available on the portal. Built on the concept similar to e-tailers like Flipkart and Amazon, the GeM platform is largely focused on hardware procurement but has been adding new services like courier and event management on the platform throughout last year. The buyers are largely government organisations and public sector utilities. As per GeM, it has 3.24 lakh sellers and service providers on its platform, which includes startups.

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