TDS relief expected for MSMEs transacting through e-commerce platforms

The authorities is contemplating offering reduction to micro, small and medium enterprises (MSMEs) hit by the coronavirus pandemic, sparing them from a 1% tax on product sales by means of e-commerce platforms, which takes impact on October 1, officers stated.

The tax exemption restrict may very well be elevated from the prevailing Rs 5 lakh for small companies. The tax deducted at supply (TDS) mechanism would proceed to examine tax evasion by entities utilizing e-commerce platforms to promote items and providers, two officers working in numerous ministries stated, requesting anonymity.

“The provision has been introduced in the Budget 2020-21 to make e-commerce transactions tax-compliant. Hence it has a clause related to PAN [permanent account number] or Aadhaar number,” one of many officers stated.

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Finance minister Nirmala Sitharaman, in her price range speech on February 1, 2020 launched a TDS mechanism for e-commerce transactions. “In order to widen and deepen the tax net, it is proposed to provide that e-commerce operators shall deduct TDS on all payments or credits to e-commerce participants at the rate of 1% in PAN/Aadhaar cases and 5% in non-PAN/Aadhaar cases,” she stated.

“In order to provide relief to small businessmen, it is proposed to provide exemption to an individual and HUF [Hindu Undivided Family] who receives less than Rs 5 lakh and furnishes PAN/Aadhaar,” Sitharaman stated. The price range provision is efficient from October 1.

The trade, significantly MSMEs, have submitted to the federal government that the TDS mechanism can be a further burden on them as TDS shall be deducted on product sales quantity that additionally embody the fee to the e-commerce platform, the second official stated.

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“Besides, it will be tax on tax as the gross sale value would also include Goods and Services Tax (GST). Thus, their already wafer-thin profit margin would shrink further and they will be dissuaded to transact online,” he stated.

Besides elevating the present restrict of Rs 5 lakh, different reduction into consideration for small models embody extending the October 1 deadline, and computation of TDS after deducting GST and fee to the e-commerce platform as an alternative of product sales worth, the officers stated.

Vinod Kumar, president of the India SME Forum, stated: “E-commerce platforms are emerging marketplaces for MSMEs. They provide another alternative to small units to sell their produce to a wider customer base. It should be encouraged. Therefore, the government may revisit the TDS policy.”

Experts say that e-commerce platforms have the potential to revive MSMEs that contribute about 30% of nation’s gross home product (GDP). Nilaya Varma, co-founder and CEO of consulting agency Primus Partners, stated: “Even amidst the Covid-19 crisis, MSME segment is driving the hopes of the nation to bring it back on the path to recovery. Given financial strain and the already thin margins that the MSME segment works on, further exacerbated bythe pandemic, it is ideal for the government to defer any measures which can strain cash flows for such players, for at least a year,” Varma stated.

Divakar Vijayasarathy, founder and managing accomplice of consulting agency DVS Advisors LLP stated the Rs 5 lakh restrict may be very low even for micro entities.

“The said provision would impact the small players dealing with products with lower margins such as FMCG [fast moving consumer goods] suppliers where the gross margins are 10% or lower, since it is on the gross sale value including GST. Both their working capital as well as the cash profit would be impacted,” he stated.

“The impact would be inversely proportional to the margins i.e. lower the margins, higher would be the impact. The limits should be increased substantially to give relief to the small traders,” he added.

Ther MSME sector contributes 37% of producing output in India and gives employment to greater than 111 million folks; it additionally accounts for about 50% of India’s items exports.