Finance Act 2020 not only infused a new TDS provision for E-commerce business in India, it also brought in new Equalization Levy at 2% on E-commerce Operators (non-resident) thereby widening the tax base for the growing digital economy.

1. Budget 2020:
Implications on
e-commerce businesses

2. Contents
▪ Background
▪ E-commerce business
▪ Streams of revenue
▪ The e-commerce transaction flow
▪ TDS on e-commerce transaction
▪ Key Insights on Sec 194-O
▪ Equalisation Levy provisions
▪ Other Statutes impacting e-commerce business
▪ Draft National e-commerce policy 2019

3. Background
• Indian e-commerce market is expected to grow to US$ 200 Bn by 2026 from US$50
Bn as of 2018
• Growth triggered by internet and smartphone penetration in the country
• Revenue expected to reach US$ 120 Bn by 2020, growing at a annual rate of 51
percent
Market
• e-commerce transactions occurs in B2B, B2C, C2C and C2B models
• Scope of such transactions very wide, spread over various sectors such as online
retailers, online food delivery platforms, car aggregators, online advertising, online
bookings, online payments, money transfers etc
Coverage
TDS Applicable on (a) amount retained by e-commerce portal (commission paid by the
supplier) u/s 194H (b) payment made to delivery agents or driver partners u/s 194C (c)
warehouse rent, logistics and storage charges u/s 194I/ 194C (d) advertisements on
website and other online platforms u/s 194C/ 194J
Existing
Provisions

4. Background
Report of the committee set up by the Central Board of Direct Taxes to look
into issues of TDS on e-commerce and aggregators had pointed out various
defaults in TDS compliance by e-commerce operators:
• Tax not deducted by restaurant partners on payment of commission to a
online food delivery operator
• Tax not deducted by online cab operator on amount paid to driver partners
• Online entertainment and event booking platforms not deducting tax on
transactions with various parties where Section 194C/ 194H was clearly
applicable
Issues
• Obligation to deduct taxes on payments made to payee, imposed on the
payer (subject to some exclusions)
• Difficult to apply TDS provisions in e-commerce models, as customers/
buyers are actual payers and not the e-commerce operators
• Practically impossible for payer (customer) to comply with TDS provisions
on such transactions
• TDS provisions not applicable on purchase of goods
Prior to
Budget 2020

5. E-commerce businesses
Online
Retailers
Amazon
Flipkart
Snapdeal
Online food
delivery
platforms
Zomato
Swiggy
Grofers
Vehicle
Aggregators
Ola
Uber
Redbus
Online
Advertisers
Google
Facebook
Yahoo
Online
holiday
booking
Trivago
TripAdvisor
MakeMyTrip
Online
entertainment
BookMyShow
Paytm
TicketNew
Online
payments/
wallets
Paytm
CC Avenue
PhonePe
Online
content
YouTube
Netflix
Amazon Prime

6. Streams of Revenue
`
Sources
of
Revenue
Commission
(Seller
commission)
Logistics
(Delivery
charges)
Rent
(Warehouse
rent)
Advertisement
(Online
advertisement)
Convenience
charges
(Internet
handling fee)
Subscription
charges
Advertisement
(Online
advertisement)
Convenience
charges
(Internet
handling fee)
Sec 194H
Sec 194C
Sec 194I/194C
Sec 194J/194C

7. The e-commerce transaction flow
Royalty, FTS, commission,
rent, shipment/ packaging/
delivery charges
Royalty to authors,
owners or rights etc.
Transaction fees
Advertisement fees
Bank E-commerce
company
E-commerce
participants
Fees paid Fees paid
Suggestion that e‐commerce be subjected to a one‐source rule by
subjecting services, royalties, rents, and sales in electronic commerce to the same source rule has been
deliberated upon widely. Apart from this, it should also include imposition of gross withholding tax on sales/
services provided through electronic means into the
demand jurisdiction. This principle obviously suffers from the infirmity of conferring
the jurisdiction of collecting tax exclusively to the demand jurisdiction providing its
market while excluding other jurisdictions and, as a result, the principle of sharing
the pie gets affected. Besides this, the mode of taxation disturbs the principle of
neutrality and introduces a distinct tax regime for e‐commerce in comparison to non ecommerce module

8. Illustration
e-commerce
participants
Buyer
e-commerce
operators
Warehouse
₹130
(paid by
customer)
₹10
(Rent)
₹20
(Delivery
charges)
₹85
(after retaining
commission of ₹15)
Sec 194H
Sec 194-I
Sec 194C
Equalisation Levy and Section 194-O are new boys in the town!

9. Union Budget 2020 proposes to widen the scope of TDS on e-commerce transactions by
inserting new provision (Section 194-O) to levy TDS at the rate of 1 percent on payments made
to e-commerce participants being a resident in India, for sale of goods or services including
digital products, through digital or electronic facility or platform for e-commerce
TDS on e-commerce transactions (Sec 194-O)
e-commerce operator, whether resident or non-resident of India liable to deduct taxes at source
TDS applicable only on resident e-commerce participants
Tax to be deducted at the time of credit or payment (whichever is earlier)
Tax to be deducted on gross amount of sales or services or both
Any payment made directly by purchaser to the participant shall be deemed to have been paid by
the operator and TDS applicable
TDS rate – 5 percent for non-PAN/ non-Aadhaar cases

10. Exemption from TDS given to individual/ HUF e-commerce participants, where gross amount of
sales through e-commerce operator does not exceed INR 5 lakhs (PAN/ Aadhaar needed)
Transactions dealt under Section 194-O not be liable to TDS under any other provisions of
Chapter XVII-B of Income Tax Act
Provision not applicable to amounts received by an e-commerce operator for hosting
advertisements
Amendment proposed to come into effect from October 1, 2020
e-commerce operators
Any person who owns,
operates or manages digital
or electronic facility or platform
for electronic commerce
e-commerce participant
A person resident in India
selling goods or providing
services or both, including
digital products, through digital
or electronic facility or platform
for electronic commerce
Services
Includes fees for technical
and professional services as
defined in Section 194J
e-commerce operator deemed to be person responsible for paying e-commerce participants
TDS on e-commerce transactions (Sec 194-O)

11. Key insights on Sec 194-O
No provisions currently to consider issues such as subsequent return of goods by
customers/ discount codes/ gift vouchers etc, for computing amount to be subject to
TDS. GST laws specifically provide for reduction of taxable supplies returned
No clarity regarding liability of the person responsible for TDS in cases where multiple
e-commerce operators are involved in transaction such as use of third-party electronic
payment gateways in settlement of e-commerce transaction
Section 194-O does not define ‘gross amount of sale or services or both’ on which
taxes are required to be deducted. Clarity required on inclusions and exclusions from
the gross amount, if any.
Section 194-O applies to only ‘resident’ e-commerce participants and to e-commerce
operators. This implies that foreign operators are required to comply with Indian TDS
provisions even if there is just one such transaction on its platform
Interplay between Section 194-O and Equalisation Levy when supply of goods or
provision of service is made by a resident player through a non-resident

12. Key insights on Sec 194-O
Sec 206AA provides that if Permanent Account Number (PAN) is not furnished by the payee,
withholding tax rate would be 20 percent (5 percent in case of Sec 194-O) or the rate in
force, whichever is higher
CBDT had notified Rule 114AAA on February 13, 2020 to provide that failure to link
Aadhaar number by March 31, 2020 (now June 30, 2020) shall render PAN, allotted to
such person inoperative
Subsequent to PAN becoming inoperative, it shall be presumed that such person has
not furnished PAN, triggering Sec 206AA provisions [Rule 114AAA(2)]
E-commerce operator needs to ensure that e-commerce participants link their PAN and
Aadhaar. Failure to do so would attract higher TDS. Exposure of interest under Section 201
exist for e-commerce operator in case right rate of TDS not applied (even under other TDS
sections such as Sec 194C, 194J etc)
PAN-Aadhaar linking

13. Other Statutes impacting e-commerce business
GST laws
Every e-commerce operator (not being an agent) shall deduct tax at source (TCS) on the consideration
collected by them on behalf of supplier of goods or services who makes supplies through the operator’s online
platform. Rate of TCS is 1 percent
Personal Data Protection Bill, 2019 (not yet enacted)
▪ Requires digital companies and social media intermediaries to store data in India
▪ Under treaty law, taxation could arise if data storage creates a fixed place Permanent Establishment (Fixed
PE) for the foreign enterprise
▪ Entities may take the services of cloud computing networks instead of maintaining their own infrastructure
for the purposes of storing data, to avoid creation of a PE. However, the introduction of concept of
‘Significant Economic Presence’ could have tax consequences in such cases as well. (SEP provisions have
been deferred till April 2022 in Budget 2020)
▪ Also requires significant data fiduciaries to appoint data protection officer locally, which may also trigger
creation of a PE for foreign enterprise
Equalisation levy (Finance Act 2016)
▪ Services covered are online advertisement and any provision for digital advertising space or facilities/
service for the purpose of online advertisement. Present applicable rate is 6 percent
▪ Applicable on payments made to non-resident service provider if the annual payment exceeds 1 lakh in a
FY

14. Other Statutes impacting e-commerce business
Equalisation (EQ) levy on e-commerce supply or services
Amendments to Finance Bill 2020 proposes to enlarge the scope of EQ levy on e-commerce supply or
services by inserting new provisions in Finance Act 2016, to charge equalisation levy at the rate of 2
percent to consideration received or receivable by an e-commerce operator from e-commerce supply or
services made or provided or facilitated by it
o Only non-resident (not having PE in India) e-commerce operators are liable for proposed EQ levy
o Applicable when goods or services are provided or facilitated by e-commerce operator to -
▪ A person resident in India or
▪ A person who buys using IP address in India or (instances such as NR using Indian Wi-Fi could
get covered)
▪ A non-resident in specified circumstances
o Not applicable where -
▪ e-commerce operator has PE in India and the e-commerce supply or service are effectively
connected to such PE
▪ EQ levy at 6 percent is leviable on specified services under Section 165 of FA 2016
▪ Sales, turnover or gross receipts in respect of goods sold or services provided to persons
mentioned above is less than INR 20 million in a year
o Amendment proposed to come into effect from April 1, 2020

15. Other Statutes impacting e-commerce business
EQ levy on e-commerce supply or services (Contd..)
o Contrary to taxable event, where resident payer was responsible to deduct and pay equalisation
levy on specified services, EQ levy on e-commerce operator is responsibility and is to be
discharged by the operator itself, on a quarterly basis
o EQ levy not to be a part of Income Tax Act and not subject to provisions of tax treaties. Foreign tax
credit issue would continue to exist for NR players in their home countries
e-commerce operators
Non-resident who owns,
operates or manages digital
or electronic facility or platform
for online sale of goods or
online provision of services or
both
e-commerce supply or services
Online sale of goods owned by e-commerce operator
Online provision of services provided by e-commerce operator
Online sale of goods or provision of services or both facilitated
by e-commerce operator
Any combination activities listed above
Specified circumstances
Sale of advertisement, which targets customers, resident in
India or customers who accesses the advertisement through IP
address located in India
Sale of data, collected from a person who is resident in India or
from person who uses IP address located in India
Quite
substantial
in reach

16. Other Statutes impacting e-commerce business
EQ levy on e-commerce supply or services
e-commerce supply or services
Person resident in India
Person who buys using
IP address in India
Non-resident in
specified circumstances
Non resident e-commerce
operator

17. Draft National E-commerce Policy 2019
Draft National e-commerce policy was released by the Department for Promotion of Industry and
Internal Trade (DPIIT) on February 23, 2019 with an objective to enable India to benefit from
digitisation by:
• creating a governance framework for various stakeholders
• strategies for data localisation, consumer protection
• Promoting MEMEs and start-ups
Draft policy deals with issues in six broad themes
• Emphasis on data localisation and restriction on cross border flow of data
• Discouraging capital dumping – mandates import shipments through customs. Prohibiting
access to non-compliant app/websites
• Mandatory registered Indian business entity for e-commerce sites/ apps downloadable in
India as importer on record
Data
Infrastructure
development
Marketplaces
Regulatory issues
stimulating
domestic digital
economy
Export promotion

18. Recent developments

19. Thank you
Sandeep Jhunjhunwala
Director
Nangia Andersen LLP
sandeep.jhunjhunwala@nangia-andersen.com
+91 97401 55469/ +91 80 2228 0999
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