The Internet and Mobile Association of India (IAMAI) said that the tax deducted at source (TDS) applicable for all product and service e-commerce firms needed to be revoked by the government. TDS, which was introduced by through Section 194-0 of the Income Tax (I-T) Act under the Finance Act 2020, mandated a deduction of 1% tax for all ecommerce platforms.
According to the association, withholding such taxation created cash flow irregularities for businesses and small-scale sellers. It also shared some calculations that highlighted that for small sellers conducting business via e-commerce platforms, TDS will invariably result in excess tax deduction leading to a long cycle of refunds by the end of the fiscal. Reconciliation of ITC (input tax credit) has proved to be a major challenge under GST and imposing TDS for direct taxes risk replicating that challenge on the direct tax front, IAMAI noted.
All such complications raise compliance burden for small sellers and make digital platforms unattractive to conduct business for them, it added. The association stated that the objective of properly identifying online transactions and tax assessments is done successfully via the TCS (tax collected at source) mechanism, and a transparent mechanism of data sharing between CBIC and CBDT can help reconcile revenue collection between the two departments without having to impose additional burdens on businesses in the form a new levy.
It pointed out that online marketplaces are recognised as digital intermediaries by law, and platforms that only facilitate sellers and buyers to interact are not actually engaged in the act of buying or selling goods. Given the platforms are neither the payee, nor the recipient of the payments, asking platforms to collect and deposit taxes for the sellers undermines their intermediary role, it further stated. The association suggested to the Centre that in wake of the present economic slowdown that is proving to be a major challenge for most businesses, any such form of additional levy could be avoided.