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Soumik Dey
Soumik Dey


Taxing times


Government plans to bring e-commerce under a more effective tax net

  • In case of an aggregator like Uber, exemption is allowed if it had invested permanently in a corporate office.

The days of getting the best deals online could be numbered. To cash in on the popularity of online deals, the government plans to bring online service providers under a more effective tax net. Finance Minister Arun Jaitley made a provision for a 6 per cent equalisation levy in this year's Union budget. The government has set up a committee of eight members to look into the issues of taxation on e-commerce transactions.

The committee comprises a director from the Central Board of Direct Taxes, two CBDT joint secretaries, a commissioner of income tax (international taxation), one industry representative from the Confederation of Indian Industry, and one from the Institute of Chartered Accountants of India.

The terms of reference for the committee include identifying and detailing business models for e-commerce. Most importantly, the eight-member committee would be responsible for suggesting approaches to deal with tax issues in e-commerce transactions under different business models.

In a report in February, titled “Proposal for equalisation levy on specified transactions”, the committee proposed a specified digital services and facilities levy that would also include online marketing and advertisement. This would definitely impact the revenue of companies such as Google AdWords and Facebook.

The levy proposed was 6 to 8 per cent of the gross payment made for the specified service and facilities. The proposal seeks to include a host of services such as online marketing, cloud computing, website designing and hosting, digital platforms used for sale of goods, and services and also on online use and download of software and applications.

Provisions were also made in the proposals so that the equalisation levy would affect only payments exceeding Rs 1 lakh, for a specified service, by an Indian resident or by any permanent establishment of a non-resident individual or an enterprise. Incomes that are already subjected to equalisation levy, however, would be exempted from income tax, the committee's proposal said.

This provision is said to be impacting margins of most e-retailers in India. “Most e-tailers who follow the markets model to provide platform to small suppliers of goods and services would be hit by this,” said C.P. Gurnani, CEO of Tech Mahindra and secretary general of National Association of Software and Service Companies (NASSCOM).

Most small suppliers generate billings of around Rs 4 lakh from e-tail sales following tie-ups with online platforms. Service aggregators, too, would come under this additional tax net, as the aggregate amount of any specified service, say for cabs or restaurants, would be taxed if it exceeds 01 lakh a year.


For, example in case of an aggregator like Uber, exemption is allowed if it had invested permanently in a facility like any taxi or mini bus depot, or a permanent corporate office.

“This would translate to issues for suppliers as they may not be considered for repeat business if their aggregate billing during the year with any e-tailer touches 01 lakh. The government must rethink this issue,” said Praveen Khandelwal, secretary of the Confederation of All India Traders.

The issue has currently been put on hold for implementation as the BJP government is facing opposition from traders, one of its loyal vote banks. The government is, however, moving with the intent to introduce this levy in the current fiscal. “The finance ministry is working out the modalities at this time,” said a finance ministry spokesperson. “And we will be ready when the final white paper on e-commerce taxation is prepared by the committee. Consultations with stakeholders are progressing.”

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Topics : #taxes

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