The Budget 2020 proposes to levy a TDS of 1% on e-commerce transactions from 1 April 2020.
Small and big traders, service providers and the self-employed will be liable for the TDS levy on their e-commerce sales or services. The TDS will be applicable for payments made towards the purchase of goods or provision of services facilitated through an e-commerce operator.
The TDS levy is on the gross amount, including the amount paid directly by a purchaser of goods or service to a seller or service provider. In a case where the e-commerce participant selling their products or providing services do not furnish their PAN, the TDS rate applicable will increase to 5% in place of 1%.
However, there will be no levy of TDS on individuals and Hindu Undivided Family (HUF) participants whose gross value of sales or services or both do not exceed Rs 5 lakh per year. In such cases, the individual or HUF will have to furnish their PAN or Aadhaar to the e-commerce operator.
The proposed TDS will apply only to payments made to Indian residents selling their goods or services through the e-commerce platform.
“E-Commerce operator” is defined as any person who owns, operates or manages digital or electronic facility or platform for electronic commerce and is a person responsible for paying to e-commerce participant — for example, Amazon, Flipkart, Swiggy, Zomato, Uber, and so on.
“E-Commerce participant” is a person resident in India selling goods or providing services or both, including digital products, through any digital or electronic facility or platform for electronic commerce.
The proposed TDS levy seeks to bring in e-commerce sellers and service providers within the tax net.
The TDS levy will impact the sales made or services provided by any small trader or any branded product or service sold through e-commerce operators. Most of the established brands would need to factor a TDS cost of 1% in their margins. Small traders and self-employed individuals have to obtain Permanent Account Number (PAN) to avoid a higher TDS of 5% or to claim the exemption for turnover up to Rs 5 lakh.
“Services” is defined to include fees for technical services and prices for professional services as prescribed in the income tax law. Any sale or service transaction through an e-commerce operator will be liable to TDS only once under the income tax law. For example, a person providing interior decoration services who incurs a TDS of 1% will not be liable for a TDS again under the TDS head ‘professional services’.
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I am a Chartered Accountant by profession. I specialise in personal taxes and corporate income tax matters. I am an avid reader and track developments in financial markets, economy and other market developments.