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E-Commerce Firms, Not Payment Gateways, To Deduct Tax On Online Sales: Government

The provision is aimed at bringing merchants selling goods on e-commerce websites under the tax net.

The icons of some of the payment and e-commerce apps in India. (Photographer: Samyukta Lakshmi/Bloomberg)
The icons of some of the payment and e-commerce apps in India. (Photographer: Samyukta Lakshmi/Bloomberg)

The new law to deduct income tax on e-commerce sales, which kicks in on Oct. 1, will require only online retailers to deduct the levy while making payments to merchants in cases where multiple online aggregators like third-party payment gateways are involved, the government has said.

The industry had sought clarity from the government on who would take the onus on deducting 1% tax while making payments to merchants in cases where multiple aggregators or e-commerce players are involved.

The government, in this year’s Union budget, had introduced the provision that mandates e-commerce operators to deduct 1% income tax on the gross amount of goods sold while making payments to merchants that sell goods worth more than Rs 5 lakh in a year.

The provision is aimed at bringing merchants selling goods on e-commerce websites under the tax net, and such sellers can claim credit for the tax paid. The government has also clarified that sales of sellers will be computed from April 1, 2020, and tax would be deducted on goods sold after Oct. 1.

However, grey areas remain. The government hasn’t clarified the “most significant uncertainty” on treatment of return of goods by customers and use of discount codes and gift coupons for computing the amount for deducting the tax, said Sandeep Jhunjhunwala, a partner at Nangia Andersen LLP.

The clarification also said transactions in securities and commodities which are traded through recognised stock exchanges or cleared and settled by the recognised clearing corporation will be exempt. Transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges will also be exempt, the government said.