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It’s time for TDS on E-commerce participants 😊

TDS on E-commerce participants:

We all know that the Government of India declared Section 194-O of the Union Budget 2020 to bring all e-commerce players and suppliers under the purview of taxpayers. Fortunately, due to this pandemic, the amendment was postponed from 1st April 2020 to 1st October 2020 and from tomorrow, there won’t be any exception on the tax burden for e-commerce participants.

Under this Act, e-commerce operators need to deduct TDS (Tax Deduction at source) at a rate of 1% at the time of payment of the amount for the selling of goods and services on any e-commerce platform. If you are a non-commerce reader, "TDS is a method of collecting the tax by the payer(e-commerce operator) by deducting it from the sum that the payee (e-commerce participant) needs to earn."

According to CBDT (Central Board of Direct Taxes), a vendor or an e-commerce participant who has exceeded 5 lakhs rupee sales in the previous financial year would be subject to this Act, but excludes e-commerce participants who are non-residents of India.

Why government dared to imply TDS on E-commerce participants?

After digital India reforms, Indians prefer digital platforms to purchase or sell goods or services because for the seller, it needs less cost to set up and less effort to search for buyers on the platform's user base. Also, buyers have several choices available on one platform, which allows them to compare each other.

This has resulted in a rise in e-commerce user-base and revenue generation day by day, and has made it difficult to identify small players who do not file their returns. Hence, the government came with this resolution to deduct tax during their payment in order to prevent tax evasion by e-commerce participants.

How e-commerce startup’s are impacted with this resolution?

We all know that most startups in India were e-commerce sites, and they need to pay their seller continuously without holding them for a longer period (Amazon is paying their settlement every 30 days). Young start-ups like Zomato, Snapdeal, are strongly impacted due to this amendment as they need to sacrifice some of their cash-flows or working capital in order to retain these deducted taxes. This might impact their growth strategies.


Finally, it is one of the ambitious measures by the government to raise tax revenue by preventing tax evasion by e-commerce participants. However, it poses a challenge for e-commerce operators as they need to find ways to minimize its repercussions on their cash flow and working capital requirements.

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