Union budget 2020: new fiscal clause to affect e-comm sellers
BENGALURU: Third-party sellers in electronic markets may face a liquidity restriction when the government introduced a new withholding tax on e-commerce transactions in the union budget . Essentially, companies like Amazon India and Flipkart will retain an additional 1% tax deduction at source (TDS) while making payments to merchants that sell products on their platforms. This would be additional to the GST tax deduction that electronic retailers charge online sellers.
While this would not affect consumers in terms of final prices of products on e-commerce platforms immediately, the new 1% TDS would make sellers work around their working capital arrangements, to buy or buy products for sell online The 1% tax is required to be deducted on the gross amount of such sales or service or both, the finance bill said after the budget statement by the finance minister. It is unclear whether these standards are expected to affect restaurants on online food delivery platforms such as Zomato and Swiggy and service professionals on platforms such as Urban Company (until recently UrbanClap).
This will not apply to those with an annual gross sale of less than Rs 5 lakh and who can provide their permanent account number (PAN) or Aadhaar number to the e-commerce operator. For those who exceed gross sales of more than Rs 5 lakh, this TDS will be deducted at 5% if they do not provide their PAN or Aadhaar number.
Working capital will be affected due to this. We have supported 1% tax collection under GST despite market opposition and we have recommended the application of 1% TDS under the Income Tax Law as inserted today as section 194-O. However, we had also sought the relaxation of the technical application of section 194H because of which we have to deduct TDS in the market services and demand the return of the markets. The new provision would be welcomed only with the relaxation of existing provisions, said a spokesperson for the All India Online Vendors Association, which represents a group of small online sellers.