While announcing the budget for 2020-21, the union government mandated online marketplaces such as Flipkart, Amazon, Uber and UrbanClap to deduct 1 per cent tax at source while crediting payments to vendors on their platforms. This will be in addition to e-marketplaces already deducting 1 per cent tax at source, as part of the Goods and Services Tax (GST) on behalf of the seller or service provider. This tax will be in effect from April 1.
According to industry executives, the union government’s move to draw small vendors and service providers in e-marketplaces into the tax-net could raise compliance costs that mat have been passed onto consumers.
Gouri Puri, a partner at law firm Shardul Amarchand Mangaldas said that there will be incongruity as some transactions that are not subject to TDS in the brick and mortar will be subject to TDS now whereas tax expert Amit Maheshwari said, “ For sure, the provision is applicable only on payments to sellers who clock over Rs 5 lakh sales on a particular e-platform. And, while it widens the country’s tax-base it will impact cash flow for small traders.
According to a representative for a group of online vendors, the fresh levy would support the government’s move if an older provision “under Section 194H” is removed. “This move will create a working capital issue since we’re already paying 5 per cent TDS on marketplaces charges,” he added.