Finance Minister Nirmala Sitharaman, in a huge push for digital marketplaces, reduced the tax deducted at source (TDS) for ecommerce operators from 1% to 0.1% in the Union Budget 2024-2025.
According to Section 194-O of the Income Tax Act, 1961, an ecommerce operator is required to deduct TDS for facilitating any sale of goods or providing services through an ecommerce participant. This means if a buyer purchases from a brand on an ecommerce platform, such as Amazon, then Amazon has to deduct 1% TDS before transferring any payment to the brand. This has been reduced to 0.1% effective October 10, 2024.
“Reducing TDS on ecommerce entities is poised to improve cash flow for small businesses, incentivising their digital transformation,” siad Open Network for Digital Commerce (ONDC) in an official statement.
Dhiresh Bansal, Chief Financial Officer at Meesho, noted, “Reducing TDS rates on ecommerce operators is a much-needed change which will enhance liquidity. Previously, small businesses had to wait a year to claim their refunds. This change will now lead to improved working capital efficiency, creating more parity between online and offline.”
“The provisions of the budget will remove bottlenecks in the supply chain and lend a big support to industries by encouraging clusters, establishing ecommerce export hubs, and improving credit flow to MSMEs. Reducing the TDS rate from 1% to 0.1% will significantly free up working capital for sellers.” said Kalyan Krishnamurthy, CEO, Flipkart Group.
The reduction in TDS policy “promises substantial working capital relief for micro, small, and medium enterprises (MSMEs). By reducing the financial burden on these businesses, it not only facilitates ease of doing business but also strongly encourages the adoption of digital commerce,” said Amazon India spokesperson.
Establishing ecommerce export hubs
The government also announced plans to set up ecommerce export hubs in a public-private partnership structure to “enable MSMEs and traditional artisans to sell their products in the international market,” said the Finance Minister while unveiling the Budget in the Lok Sabha.
Ecommerce giants like Amazon also praised the government’s decision. “This, in addition to reforms proposed by the RBI for cross-border payments, will play a critical role in empowering Indian MSMEs to reach global markets,” an Amazon India spokesperson noted.
Amazon, which last year signed an MoU with the Directorate General of Foreign Trade to leverage districts as export hubs, “will continue to collaborate with all stakeholders as we move closer to our goal of enabling $20 billion in cumulative ecommerce exports from India by 2025,” added the spokesperson.
Domestic D2C brands also believe that the establishment of ecommerce hubs and reduction of TDS rates will boost growth. “It will also enhance the efficiency of their operations and enhance market accessibility, including that of exports,” says Priyanka Salot, Co-founder, The Sleep Company.
Dinesh Gulati, COO, IndiaMART InterMesh believes “The formulated package to finance technology support and set up of e-Commerce export hubs in PPP mode will enable MSMEs to go beyond the geographies of India and ensure global competitiveness of India. ”
Amit Bansal, CEO of B2B e-marketplace Solv, is hopeful that the move will enhance global competitiveness and innovation for local kirana shops.
Non-domestic ecommerce operators will also be positively affected by the government’s call to withdraw the 2% Equalisation Levy imposed on foreign ecommerce companies, effective August 1, 2024. Equalisation Levy—more popularly known as Google Tax—was imposed to tax business-to-business transactions, including advertising on income accrued by foreign ecommerce companies.
