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The Internet and Mobile Association of India (IAMAI) on Thursday said that its has appealed to the government to reduce TDS on e-commerce platforms to 0.25 per cent from 1 per cent to give a much-needed relief to small sellers in the Union Budget 2020-21.

The uniform TDS on e-commerce transactions is creating major challenges for the small sellers who are conducting business via e-commerce platforms.

"Reducing TDS will help achieve the tax trail without creating the unintended cash-flow concerns," the IAMAI said in a statement.

"While it understands that it was an important move on part of the government for better monitoring and realisation of taxation, it has led to unforeseen consequences hurting SME sellers".

IAMAI had earlier shared with the authorities an illustration that suggested for merchants who have a turnover of up to Rs 1.25 crore, 1 per cent TDS under the new provisions would exceed their total tax liability, resulting in an unnecessary refund position.

"Or, in other words, create cash flow and working capital concerns for small businesses," said the IAMAI which has now appealed to the authorities in its pre-budget memorandums to reduce the rate of TDS.

Given the Covid-related economic slowdown, e-commerce platforms have proven to be a crucial lifeline for small scale and MSME sellers, who do not have the marketing or logistics bandwidth for wider outreach and are now using ecommerce platforms to sell across the country.

"Unfortunately, the TDS, over and above the pre-existing TCS under GST, now means that such sellers conducting business over e-commerce platforms have a considerable amount of their total revenues locked up under tax claims," the association argued.

Forcing small businesses into prolonged tax refund claims for release of critical revenues is perhaps unwarranted under the present circumstances, it added.