A New Tax Web that has Entangled e-Commerce

Context:   The Section 194-O of India’s Income Tax Act aims to cast a wider tax net, but is riddled with such complexity that it could leave many e-com platforms reeling. 

Significant provisions of Section 194-O:

• An Equalisation Levy
• Compulsory Goods and Services Tax (GST) e-invoicing by large firms.
• A 5% slice-off for tax by banks of any sum above Rs 7 lakh sent abroad.
• E-Com players are required to make tax deductions at source (TDS): on amounts above ?5 lakh payable to sellers on their online platforms for revenues drawn by the hawking of goods and services.
• An e-com operator must deduct 1% for merchants with a PAN or Aadhaar number, and 5% for those without either-even if payments are not routed through it.

Advantages of Section 194-O:

• Widen tax net: with an aim that nobody can quarrel with, given the country’s small base of taxpayers.
• Catching the culprits: it enables the authorities to monitor businesses that hawk their wares on Flipkart, Amazon and other websites.

• Those running shady sweat-shop operations off the tax radar and using these platforms as retail outlets will pop up on the tax radar, thanks to TDS data. 

Issues with the Section 194-O

• Difficulties in adaptation: by the e-commerce operators.
• Additional burden and compliance costs: involved in deducting a sliver of money transferred to hawkers.

• But small websites trying to emulate such a model may find it much too burdensome.
• It also complicates life for handymen such as carpenters, plumbers and electricians who offer their services through an e-com operator. 

• System’s complexity: 

• Unclarity over tax deduction: either to be done by payment gateways or the e-commerce platform.
• While the CBDT has disallowed insurance aggregators to collect TDS, the Insurance Act already prohibits the intermediary from making any kind of deductions.

Conclusion:  There are many perplexities that need to be sorted out before the system can work smoothly. The sooner it’s done, the easier e-com operators will breathe.