FT of e-commerce companies from October 1

A separate provision also requires each seller with more than ₹Sales of 10 crores in the previous year, to collect 0.1% of the above sale consideration ₹50 lakh as income tax (TCS) at the time of receipt of payment.

The TDS and TCS e-commerce provisions were introduced through the Finance Act 2020 as part of efforts to collect more data on transactions in the economy for effective tax administration.

Ajay Rotti, Partner, Dhruva Advisors LLP, said the clarification issued left a lot of room for dealing with sales returns and discounts. The industry request was to allow a reduction in sales returns and discounts from the amount on which the TDS was to be applied.

“… This was consistent with real income theory and the accounting aspects of what constitutes turnover. The circular clarifies that these cannot be adjusted for the needs of the TCS but is silent on the TDS of e-commerce operators. This was an obvious request for clarification that was missed in the FAQ. This will impact the cash flow of sellers, especially MSMEs,” Rotti said.

On e-commerce TDS, the most significant uncertainty concerns the treatment of subsequent returns of goods by customers and the consideration of discount codes and gift vouchers for the calculation of the amounts to be submitted to the TDS. Foreign e-commerce operators should also understand the interaction between Section 194-O and the equalization levy when the supply of goods or provision of services encompasses resident e-commerce participants.

A spokesperson for Flipkart, which works with thousands of MSMEs, said MSMEs must be supported by a liberal tax compliance regime that does not negatively impact the cash flow of these small businesses (like the removal of 1% TDS on the gross consideration of each sale where these online sellers are already paying TCS, to mitigate the impact of the working capital lock-in).

“Streamlining compliance requirements for sellers under various laws would also go a long way in improving the ease of doing business online for MSME sellers and help them contribute to the economic growth of the country. The rapid implementation of these measures will allow hundreds of thousands of MSMEs to make a stronger comeback in the upcoming holiday season and help the overall economy while bringing more optimism and positivity,” said the Flipkart spokesperson.

Rotti added that the clarification provides that the exemption threshold applies from April 1, as a measure of simplification and ease of compliance, the exemption threshold could have been applied from October 1 and the TDS being applied on amounts exceeding the threshold.

“… This FAQ published a day before implementation has further increased the complexity for the industry,” he said.

Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP said the current circular under TCS under Section 206(1H) on the aggregate sale of goods of above value ₹50 lakh per year clarifies several confusing aspects such as no adjustment for sales return, rebate or GST component and applicability on receipts after October 1 even if sales were made before this period .

“Clarity regarding the responsibility of the person responsible for the TDS in cases where multiple e-commerce operators are involved in a transaction, such as the use of third-party e-payment gateways in the settlement of an e-commerce transaction,” said added Jhunjhunwala.