IndiaTech urges finance ministry to reconsider deadline for 1% TDS on ecommerce

As the deadline for implementation of 1% Tax Deduction at Source (TDS) for all ecommerce entities nears, advocacy platform for Indian consumer internet companies, IndiaTech, has written to the Ministry of Finance to reconsider its applicability. 

In a letter dated September 2, IndiaTech has stated the examples of online travel aggregators and online insurance intermediaries which are prohibited by their respective regulators from making deductions in the amount paid by the consumer. 

The letter adds that the deduction of TDS was “creating an ease of doing business issue by conflicting with their existing business regulations besides affecting working capital due to a forced compliance model.”

IndiaTech represents venture capital backed Indian consumer internet companies such as mobility platform Ola, OTA player MakeMyTrip, insurance intermediary PolicyBazaar, on-demand services platform Urban Company, among others.

The provision for levying 1% TDS on payments made to ecommerce entities was introduced in the union budget 2020 through Section 194O. This was meant to expand the tax base and bring ecommerce entities in the goods, service and online travel sector under the ambit.

“IndiaTech.org has been representing the Ministry of Finance on the issue and had earlier sought an abeyance on its applicability. Section 194O needs to be viewed more practically and not be uniformly applied on to all e-Commerce businesses since it may conflict with existing regulations and also be an onerous compliance issue for businesses,” said Rameesh Kailasam, chief executive officer of IndiaTech.

Ecommerce entities had opposed the introduction of Section 194O stating that it increased the cost of compliance and was an additional burden, apart from the Tax Collected at Source (TCS) under the Goods and Services Tax (GST). As per GST laws, ecommerce companies are responsible for deducting and depositing 1% tax from each transaction.

In February industry bodies had pushed for extension of the initial date of compliance with the provision which was set at April 1, 2020. Apart from this, Amazon India country head Amit Agarwal had also said that the provision will impair capital availability for small sellers.

“A blanket implementation will only translate into unnecessary burden on the ecommerce entities that are a mere connecting point between a buyer and a seller,” Kailasam of IndiaTech told TechCircle.