The increasing digitalization has transformed the virtual world to an advanced level leading to the growth and development of the commercial sector. Online has now become the new trendline for the consumer segment of the economy which prefer ordering at the doorstep, thus boosting the business transactions in the country. The commercial activities undergo the scanning by the tax regimes that enable the country to deploy the amount to receive for the progress of the nation. The recent step by Government throws light on the mechanism of tax collection that shall be applicable with respect to the ecommerce companies.

Newly effective tax provisions

The regulation of tax of commercial transactions of goods and services in India, is governed under a unified indirect tax system known as Goods and Services Tax (hereinafter referred to as “GST”) in accordance to the provisions of Central Goods and Services Tax Act, 2017 (hereinafter referred to as the “Act”). It is essentially a tax only on value addition at each stage.

The Government has made the following provisions of the Act effective from October 1, 2018 vide notifications dated September 13, 2018, with the aim to prevent tax evasion:

  • Tax Deducted at Source (hereinafter referred to as “TDS”)[1] – The Government has mandated for deduction tax at the rate of 1% from the payment made or credited to the supplier of taxable goods or services or both, where the total value of such supply, under a contract, exceeds INR 250,000 [USD 3473 approx.]. [Section 51(1) of the Act to come into force].
  • Tax Collected at Source (hereinafter referred to as “TCS”)[2] – Every electronic commerce operator, not being an agent, shall collect an amount calculated at such rate not exceeding 1%, as may be notified by the Government, of the net value of taxable supplies made through it by other suppliers where the consideration with respect to such supplies is to be collected by the operator. [Section 52 of the Act to come into force].

Already the implementation of the aforesaid provisions had been deferred by the Government till date. However, with recent TDS/TCS notifications indicating the enforcement of the aforesaid provisions soon, the industrial concerns raise attributable to the increased burden of compliance especially for the e-commerce platforms. Already ambiguity persists regarding the process of registration of the ecommerce companies as to the fact if same is required to be done at State levels from where the supply is being received or a centralized registration would suffice.[3] Fears crop in the minds of the business entities regarding the negative impact posed by the increased obligations.