The Indian Finance Act 2020 introduced a 1% Tax Deducted at Source (TDS, or withholding tax) obligations on marketplace operators processing payments on behalf of their third-party merchants. Since 1 October 2020, marketplaces now have to register as withholding agents and deduct 1% of the gross fees. There is a payment threshold of INR 50 lakh per annum. Indian GST was introduced in 2017.
From April 2020, India has extended its non-resident equalisation levy to e-commerce sellers and marketplaces.
Scope of withholding tax
The extension of TDS from October 2020 covers any business that operates or manages digital or electronic facility or platform for electronic commerce. Eg: Amazon, Flip kart, Myntra, etc. Where their merchants provide goods or digital services supplies, then TDS will apply on the revenues collected by the marketplace.
It applies to both resident and non-resident marketplace operators; but only resident providers.
Tax Deducted at Source on e-commerce
The Indian government applies TDS as a mechanism to collect tax in order to minimise tax evasion by taxing the income (partially or wholly) at the time it is generated rather than at a later date. The marketplace processing the payment for e-commerce payment is responsible for deducting the tax and remitting it to the state. They are known as ‘deductor’.
India levies GST on digital services and e-commerce goods provided by non-resident or foreign providers and marketplaces.