TDS from sale and / or services can be applied in case of all type of supply and services instead of so many TDS/TCS provisions at present and proposed. Advance tax, instead of TDS/ TCS is better option in case of organized payees.

[DEV KUMAR KOTHARI]

 Preliminary about e-commerce operators:

It is believed that India is a very  large  markets of e-commerce players. Big operators  like Amazon, Flipkart, Alibaba, Snapdeal,  Myntra,  PayTm Mall, Shopclues are very large and new operators in limited area like , big basket, groffers,  swiggy, food panda, ola, uber,and   many more are  establishing a strong hold in the Indian market. It is also true that some of online marketing companies in grocery, and ready to eat food have closed after doing business for few years or few months. Author believe that most of reads of this website are well aware by e-commerce, operator and participants.

To widen tax base provisions are proposed for amendment in Income tax and GST both.

Observations of author:

Scope of this article is restricted to new provisions for TDS  in which it is prescribed that TDS @ 1% of sale value of goods or services of e-commerce participant , which are  provided through or  facilitation of e-commerce  operator shall be subject to such TDS by e-commerce operator. Other consequential amendments are discussed without details.

It is also provided that even if payment is received directly by e-commerece participant, the e-commerce operator shall deduct tax.

In case of individual and HUF e-commerce participants, if turnover (thorugh e-commerce operator) dos not exceed Rs. five lakh than TDS will not be attracted if PAN / AADHAR  is provided.

In case TDS took place under this provision or it is exempt under this provision than on such sale or service no tax will be deducted under other provisions.

Hosting advertisements or providing any other services which are not in connection with the sale or services referred to in sub-section (1) of proposed section will not be subject to TDS by e-commerce operator, under the new provision. (Therefore such payment  may attract TDS l under other provisions).

In case the e-commerce participant does not provide PAN  or AADHAR, rate of TDS will be 5%

  Amendments are proposed in section 197 (for lower TDS), in section 204 (to define person responsible for paying any sum) and in section 206AA (to provide for tax deduction at 5 per cent. in  non-PAN/ Aadhaar cases).

Views of author:

The rate of 1%  of sale / service value is very high. The e-commerce participants carry business at highly competitive rates and there are so many discounts, gifts, cash back, free delivery etc. so margins are very thin. This will lead to many applications for lower TDS and refund of higher amount of TDS.

GST should not be included in gross value of supply and / or service. This need clarification

The proposal,  notes and speech of FM  on this aspect are as follows with highlights added by author for easy understanding and analysis.

Suggestions:

TDS/TCS provisions can be made simple. Just like covering all supplies and services through e-commerce, TDS or TCS can be made applicable on all payments and credits by anyone if payment or credit during a previous year exceeds Rs. five lakh by a buyer of supplies of receiver of services to any one person in whose case total value exceeds ₹ 5 lakh .  The rate of 1% in case of services and 0.50 % in case of supplies can be applied.

It can be provided that initially TDS/TCS will not apply, however, once payment/ credit in favour of anyone exceeds Rs. five lakh, TDS/ TCS shall be applied in respect of entire amount including earlier payment / credit made from  1^st April of previous year. This will avoid TDS/TCS on small payments and also in cases where it is not likely that payment / credit will not exceed applicable exemption limit. For example, some publishers start TDS/TCS from first payment of few hundred or few thousand rupees, even though it is not likely that payment during entire previous year / FY will not exceed exemption limit. This causes many instances of small TDS/TCS. This can be avoided.

Advance Tax is better option in case of organised assesses:

TDS/TCS provision are good for widening base, however, in case of organised sector who are already in tax net and are bound to regularly  file RPI, advance tax payable by assesse himself can be better option instead of TDS/TCS on his account.

Therefore, TDS/TCS should be applicable only in case of salaries, unorganised small sector payees and should be exempted for large organisations.

An option can be provided to receiver of sales value/ service value to choose and make declaration whether he  opt to pay advance tax, if applicable so that he can be allowed to receive payment without TDS/TCS.   

Proposals in FB , notes on clauses and budget speech are givne below with highlights added:

Insertion of new section 194-O.

84. After section 194N of the Income-tax Act, the following section shall be inserted, namely:––

Payment of certain sums by e-commerce operator to e-commerce participant.

‘194-O. (1) Notwithstanding anything to the contrary contained in any of the provisions of Part B of this Chapter, where sale of goods or provision of services of an e-commerce participant is facilitated by an e-commerce operator through its digital or electronic facility or platform (by whatever name called), such e-commerce operator shall, at the time of credit of amount of sale or services or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier, deduct income-tax at the rate of one per cent. of the gross amount of such sales or services or both.

Explanation.––For the purposes of this sub-section, any payment made by a purchaser of goods or recipient of services directly to an e-commerce participant for the sale of goods or provision of services or both, facilitated by an e-commerce operator, shall be deemed to be the amount credited or paid by the e-commerce operator to the e-commerce participant and shall be included in the gross amount of such sale or services for the purpose of deduction of income-tax under this subsection.

(2) No deduction under sub-section (1) shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of an e-commerce participant, being an individual or Hindu undivided family, where the gross amount of such sale or services or both during the previous year does not exceed five lakh rupees and such e-commerce participant has furnished his Permanent Account Number or Aadhaar number to the e-commerce operator.

(3) Notwithstanding anything contained in Part B of this Chapter, a transaction in respect of which tax has been deducted by the e-commerce operator under sub-section (1), or which is not liable to deduction under sub-section (2), shall not be liable to tax deduction at source under any other provision of this Chapter:

Provided that the provisions of this sub-section shall not apply to any amount or aggregate of amounts received or receivable by an e-commerce operator for hosting advertisements or providing any other services which are not in connection with the sale or services referred to in sub-section (1).

Explanation.––For the purposes of this section,––

(a) “electronic commerce” means the supply of goods or services or both, including digital products, over digital or electronic network;

(b) “e-commerce operator” means a person who owns, operates or manages digital or electronic facility or platform for electronic commerce and is responsible for paying to e-commerce participant;

(c) “e-commerce participant” means a person resident in India selling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce;

(d) “services” includes ‘fees for technical services’ and fees for ‘professional services’, as defined in the Explanation to section 194J.’.

Notes on clauses:

Widening the scope of TDS on E-commerce transactions through insertion of a new section.

In order to widen and deepen the tax net by bringing participants of e-commerce within 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 per cent.  with the following key points:

• The TDS is to be paid by e-commerce operator for sale of goods or provision of service facilitated by it through its digital or electronic facility or platform;
• E-commerce operator is required to deduct tax at the time of credit of amount of sale or service or both to the account of e-commerce participant or at the time of payment thereof to such participant by any mode, whichever is earlier.
• The tax at one per cent is required to be deducted on the gross amount of such sales or service or both.
• Any payment made by a purchaser of goods or recipient of services directly to an e-commerce participant shall be deemed to be amount credited or paid by the e-commerce operator to the  e-commerce participant and shall be included in the gross amount of such sales or services for the purpose of deduction of income-tax.
• The sum credited or paid to an e-commerce participant (being an individual or HUF) by the e-commerce operator shall not be subjected to provision of this section, if the gross amount of sales or services or both of such individual or HUF, through e-commerce operator, during the previous year does not exceed five lakh rupees and such  e-commerce participant has furnished his Permanent Account Number (PAN) or Aadhaar number to the  e-commerce operator.
• A transaction in respect of which tax has been deducted by the e-commerce operator under this section or which is not liable to deduction under the exemption discussed in the previous bullet, there shall not be further liability on that transaction for TDS under any other provision of Chapter XVII-B of the Act. This is to provide clarity so that same transaction is not subjected to TDS more than once. However, it has been clarified that this exemption will not apply to any amount received or receivable by an e-commerce operator for hosting advertisements or providing any other services which are not in connection with the sale of goods or services referred to in sub-section (1) of the proposed section.
• “e-commerce operator” is defined to mean any person who owns, operates or manages digital or electronic facility or platform for electronic commerce and is a person responsible for paying to e-commerce participant.
• “e-commerce participant” is defined to mean a person resident in India selling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce.
• “electronic commerce” is defined to mean the supply of goods or services or both, including digital products, over digital or electronic network.
• “services” is defined to include fees for technical services and fees for professional services, as defined in section 194J.
• Consequential amendments are being proposed in section 197 (for lower TDS), in section 204 (to define person responsible for paying any sum) and in section 206AA (to provide for tax deduction at 5 per cent. in  non-PAN/ Aadhaar cases).

This amendment will take effect from 1st April, 2020.

[Clause 84]

 

 From budget speech of honourable FM regarding e-commerce:

3.  WIDENING AND DEEPENING OF TAX BASE

3.1  TDS on E-commerce transactions: In order to widen and deepen the tax net, it is proposed to provide that e-commerce operator shall deduct TDS on all payments or credits to e-commerce participants at the rate of 1% in PAN  /Aadhaar cases and 5% in non-PAN/Aadhaar cases. In order to provide relief to small businessman, it is proposed to provide exemption to an individual and HUF who receives less than ₹ 5 lakh and furnishes PAN/Aadhaar. 

G.  Proposals involving change in provisions of Central Goods and Services Tax Act, 2017:

B	For improving compliance
1.	Section 10 of the CGST Act is being amended, so as to exclude from the ambit of the Composition scheme certain categories of taxable persons, engaged in making- (i) supply of services not leviable to tax under the CGST Act, or (ii) inter-State outward supply of services, or (iii) outward supply of services through an e-Commerce operator.