Marketplaces have a TDS job for vendors

BENGALURU: The Union government’s move to draw small vendors and service providers on e-marketplaces into the tax net could raise compliance costs that may then be passed onto consumers, said industry executives. On Saturday, the government mandated online marketplaces, which includes companies like Flipkart, Amazon, Uber and UrbanClap, to deduct 1% tax at source while crediting payments to vendors on their platforms. This charge will be applicable from April 1.

This will be in addition to e-marketplaces already deducting 1% tax at source, as part of the Goods & Services Tax (GST), on behalf of the seller or service provider.

“When there are attempts to boost liquidity for MSMEs, this is counterproductive,” said a top executive of an online marketplace. Taxation experts reckon the compliance burden for online platforms will increase “manifold.” Gouri Puri, a partner at law firm Shardul Amarchand Mangaldas, said, “There will also be incongruity as some transactions that are not subject to TDS in the brick-and-mortar will be subject to TDS now.”


For sure, the provision is applicable only on payments to sellers who clock over Rs 5 lakh sales on a particular e-platform. And, while it widens the country’s tax-base it will impact cash-flow for small traders, said tax expert Amit Maheshwari.

Reacting to the fresh levy, a representative for a grouping of online vendors said it would support the government’s move if an older provision “under Section 194H” is removed.

“This move will create a working capital issue since we’re already paying 5% TDS on marketplaces charges,” he said.