India: Tax withholding at rate of 1% on transactions with e-commerce operators

India: Tax withholding at rate of 1% on transactions

The Central Board of Direct Taxes (CBDT) issued guidelines that are intended to clarify the rules for tax withholding transactions with on e-commerce operators.

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The Finance Act, 2020 introduced a new provision—effective 1 October 2020—providing that an e-commerce operator must withhold tax at a rate of 1% of the gross amount of sales of goods or provisions of service facilitated through its digital or electronic facility or platform.

Another provision of the Finance Act, 2020—also effective 1 October 2020—includes a requirement for a seller receiving an amount as consideration for the sale of any goods, having a value exceeding INR50 lakh in any previous year, to collect tax from the buyer at a rate of 0.1%. 

The CBDT guidelines also address the following items or issues:

  • Transactions conducted through various exchanges
  • Payment gateway and insurance agent or insurance aggregator
  • Threshold for the financial year 2020-2021
  • Adjustments for sales return, discounts or indirect taxes
  • Fuel supplied to non-resident airlines

Read a September 2020 report [PDF 212 KB] prepared by the KPMG member firm in India

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