Possibility of TDS on E Commerce

Introduction

In the last few years, the online marketplaces are on the ascent and the organizations like Amazon, Flipkart, Zomato, Swiggy etc are the banner bearers of online business in India. E-commerce has brought a fundamental change in the way of doing business and the customer engagement across various sectors.   

This digital age has led to the mushrooming of complex business models which has led to unique challenges before the tax authorities to tax these. The complex and ever-evolving ecosystem of these online marketplaces, involving multiple parties and transactions, is giving rise to a plethora of Indian tax and regulatory issues wherein, it may be difficult to track whether such a large number of suppliers doing business online are paying the required taxes.

Recently, the Government under the Goods & Services Tax (GST) regime has introduced the provisions to levy GST, by way of Tax Collected at Source on the net value of taxable supplies made through the E-commerce operator (except agent) by the suppliers, where the consideration with respect to such supplies is to be collected by the E-commerce operator.

Similar to the GST, currently there are no separate provisions under the Income Tax Act (IT Act) for collection/ withholding of taxes on the amount remitted by the E-commerce operators to the actual suppliers for the sale of goods/services provided through the platforms of the E-commerce operators. This create difficulties for the Government to track whether the required taxes have been paid or not.

Can TDS be introduced for payments made by E-commerce operators to actual suppliers?

There are speculations that the Government in the Budget 2019 may introduce the special provisions for levy of TDS under the IT Act on such E-commerce transactions.

The question that merits importance is that how to bring these E-Commerce transactions under the TDS? Can an explanation in the existing provisions of the Act will do the needful or a new provision under the Act has to be introduced to tackle the complexity?

The existing provisions impose an obligation on the payer (subject to exclusions) to make TDS on the payments made to payee. In the E-commerce model, there may be difficulties to apply the existing TDS provisions on account of following:

♦		The E-Commerce operators are not the actual payers; it is the final customer who is the actual payer. These operators merely act as a facilitator between the actual buyers and the sellers.
♦		It may be practically impossible that the payer (who is the end customer) to comply the TDS provisions on such transactions.
♦		The existing TDS provisions do not apply on the purchase of goods.

Is it possible to introduce TDS on above model?

Considering the above difficulties, it may not be possible for the Government to introduce TDS on these transactions under the current set of TDS provisions. The possible way is by introducing a special provision to specify E-commerce operator as 'deemed payer' for the purpose of TDS compliances. Once, the E-commerce operator is considered as deemed payer, the provisions of TDS will come into play and the amounts being remitted by the E-Commerce operators to the actual suppliers can be subject to TDS.

However, even in that circumstances, the transaction of purchase of goods may not be covered under the TDS ambit, taking into consideration the current scheme of TDS provisions. For this, whether the Government will think of levying Tax Collected at Source (TCS), is a big question.

Structure of the provisions and rate

In case Government decide to introduce the TDS provisions, then merging of the existing TDS provisions by introducing amendments and/or explanations to the existing provisions can bring more unrest than good. Hence, the new provisions should be introduced as a separate chapter exclusively devoted to the E-commerce operators.

Further, it may be noted that the existing rates provided under the provisions of TDS are higher and may result into an unnecessary fund blockage for the small vendors, who generally have low tax liabilities. Hence, the TDS rate may also need to be carefully decided and should not exceed 1%.

Are foreign E-commerce operators can be covered under the compliance net?

The current TDS provisions do not make distinction for compliances, whether or not the payer is resident in India or not.

Thus, similar to these in case new provisions are brought in, the same may also not provide any such distinction. Thus, the foreign E-Commerce operators may also be required to comply TDS provisions while making payments to the Indian resident payees.

Possible implications on the various stakeholders

While any such new TDS provisions may help the Government to check any tax leakages in the system, however, it will be important to take into consideration the possible impact on the E-Commerce industry as well.

It may be noted that the E-Commerce industry has recently suffered the huge impact due to introduction of GST. Any new levy and related compliances, may not be perceived in good sense by the industry and may hamper the Government's path on improvement in ease of doing business in India.

Further, the small vendors (having lower/ nil tax liabilities) who are already facing the high commission/ service fees from the E-Commerce operators may additionally suffer the liquidity issue due to blockage of TDS. These vendors may have to wait for processing of their tax returns to get the refunds of excess TDS.

Thus, before taking any decision on introduction of new provisions, all the relevant facts and possible impact on the various stakeholders should be taken into consideration by the Government so that it may not result in more harm than good.