TDS relief expected for MSMEs transacting through e-commerce platforms

The government is considering provision of relief to micro, small and medium enterprises (MSMEs) hit by the Covid-19 pandemic, sparing them from a 1% tax on gross sales through e-commerce platforms, which takes effect on October 1, officials said.

The tax exemption limit could be increased from the existing ₹5 lakh for small businesses. The tax deducted at source (TDS) mechanism would continue to check tax evasion by entities using e-commerce platforms to sell goods and services, two officials working in different ministries said, requesting anonymity.

“The provision has been introduced in the Budget 2020-21 to make e-commerce transactions tax-compliant. Hence it has a clause related to PAN [permanent account number] or Aadhaar number,” one of the officials said.

Finance minister Nirmala Sitharaman, in her budget speech on February 1, 2020 introduced a TDS mechanism for e-commerce transactions. “In order to widen and deepen the tax net, it is proposed to provide that e-commerce operators 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,” she said.

“In order to provide relief to small businessmen, it is proposed to provide exemption to an individual and HUF [Hindu Undivided Family] who receives less than ₹5 lakh and furnishes PAN/Aadhaar,” Sitharaman said. The budget provision is effective from October 1.

The industry, particularly MSMEs, have submitted to the government that the TDS mechanism would be an additional burden on them as TDS will be deducted on gross sales amount that also include the commission to the e-commerce platform, the second official said.