In her yearly budget for 2020, Indian finance minister Nirmala Sitharaman has introduced an add-on tax of 1% for sellers that list their products on e-commerce marketplaces such as Flipkart and Amazon.
“In order to widen and deepen the tax net by bringing participants of e-commerce (sellers) within the tax net, it is proposed to insert a new section 194-O in the Act so as to provide for a new levy of TDS at the rate of one percent,” the recent budget document noted. Tax deducted at source, also known ass TDS is a tax on gross sale of products or services that is deducted from the seller at the source.
Both the major e-commerce companies, Flipkart and Amazon India are seeking clarification on this new tax and might write to the ministry, according to local news agency Press Trust of India (PTI). The new 1% tax will be implemented from April 2020.
“We are studying the details and will reach out to the government for clarifications. We hope the tax regime is simple and uniform so that millions of small and medium businesses can go online, digitize their operations and continue to contribute to growing the economy,” an Amazon India spokesperson said in response to an e-mailed query.
According to the new tax levied on sellers, online marketplaces will have to deduct 1% tax on the gross sales amount.
“We are studying the details, particularly how it impacts the MSMEs and sellers on our marketplace platform. We will discuss further with our seller partners, and engage with government and other stakeholders in due course,” Flipkart told PTI in its response.
However, this will not affect the sellers whose gross sales every year is less than INR 500,000 (USD 7,000). E-commerce sellers believe this will affect the willingness of sellers to sell online. Even though they are not liable to pay the additional tax, it will be deducted initially and will get a refund when they file their taxes as per their annual sales. This will make cash flow difficult for small and medium enterprises as analysts expect a huge share of cash to be stuck with the government in their refund system.