Amid the slowdown, although the Finance Minister comes out with lots of announcement in one of the longest budget speech delivered ever, it looks like that the Government's agenda of simplification of tax regime is getting more complicated. The biggest complications comes with the dual slab rate structure wherein an individual will have to necessarily approach the tax consultant for identifying under which structure it can actually save on tax.
There are numerous structural amendments in the Finance Bill tabled which however, got no attention in the Finance Minister's speech. The prominent of all is the regulating the e-commerce operators more in order to bring more people under tax net. Lately, the government has understood that as a lot of potential taxpayers are getting involved in e-commerce, there is a huge opportunity for tax authorities to track down the taxpayers easily. To regulate the e-commerce businesses, the government has brought in two amendments as follows:-
1. Introduction of Section 194-O of the income- tax Act, 1961 ("the Act") for deduction of tax at source ("TDS") while making payment to e-commerce participants
This section has been introduced by the government to track the income of the actual e-commerce participants who are selling good/services online using e-commerce websites and still they are not paying taxes. Although, under the GST law there are some services under which Tax collected at source ("TCS") was already being levied (such as travel operators), this section brought in all e-commerce participants. Some of the key takeaways on this section are as under:-
i. TDS deducted and paid - 1% of gross amount of Sale
ii. Time of deduction - Earlier of credit to the name of e-commerce operator or payment
iii. Applicable on all payment to resident e-commerce participant
iv. This provision applies even in case of direct payment to the e-commerce participant by purchaser
v. No deduction if ecommerce participant is Individual/HUF having income less than 5 lacs and furnished PAN/Aadhar;
vi. TDS not to be deducted under any other provisions;
vii. E-Commerce Operator is any person who owns, operates or manages digital or electronic facility or platform for supply of goods or services over digital or electronic network.
viii. E-Commerce participant is any person resident in India selling goods or providing services through digital or electronic facility or platform.
Although the government's agenda of tracking the e-commerce participants is to tax digital economy however, it is causing unnecessary compliances for the e-commerce operator. Further, deduction of tax is also blocking the working capital of the e-commerce players and will adversely affect the margins and thus, actually hampering the government's agenda of ease of doing business.
Further, it is a very well principle that a non-resident is not required to deduct tax at source while making payment to any person in India as the tax laws of India cannot apply with extraterritorial affect. Thus, it is to be seen how this provisions has to be applied on a non-resident e-commerce player.
The Government should exempt the e-commerce operators paying TCS under GST from the applicability of these provisions and also should provide clarity on its applicability on the non-resident e-commerce player.
2. Extending the scope of TCS
Section 206C of the Act provides for certain payments on which recipient is required to collect additional money as tax and pay it to the government. The scope of this section has been amended by the Budget to include the following:-
a. Receipt by bank of an amount or aggregate of amount exceeding INR 7 Lacs in a year from a buyer under Liberalised Remittance Scheme ("LRS");
b. Receipt of any amount from the buyer by a seller of an overseas tour program package.
The above entities are required to collect 5% of such amount as income tax from a buyer. The provisions will not apply in case buyer is liable to deduct TDS under provisions of the Act or the buyer is a government, embassy, high commission etc. Further, seller is defined as any person whose total receipt or turnover exceeds INR 10 Crores during the preceding financial year.
Overseas tour program package has been defined to mean any package which offer visit to country than India and include expenses for travel, hotel stay, boarding or lodging or any other similar expenditure.
This provision can be really helpful for the tax authorities to track payments made by residents to non-residents under hawala and other bogus mechanism. Further, this section will enable the government to track the foreign travel of the residents of India which can be used as a useful information in the risk based income tax assessment.
The foreign travel was also highlighted by the former Finance Minister Late Shri. Arun Jaitley and it looks like the government has tried to track down affluent people not paying taxes but travelling overseas.
The provisions cover the seller of Government should exempt the e-commerce operators paying TCS under GST from the applicability of these provisions and also should provide clarity on its applicability on the non-resident e-commerce player. Further, clarification required for the amount directly paid by the buyer to hotel owners/cabs which may be covered in the tour.
The above two amendments are relevant for various ecommerce operators especially those engaged in the travel space since the additional levy of TCS and TDS over and above of existing TCS under Goods & Services Tax law will significantly affect their business. Further, other e-commerce operators need to ensure proper compliance in order to enable tax administration to properly tax the transactions undertaken over e-commerce where volumes are growing manifold.