How budget provisions for e-commerce drive economic growth and align with India’s development goals

By Siva Balakrishnan, Founder and CEO, Vserve

The Indian e-commerce sector has become a vital component of the nation’s digital transformation and has emerged as a pillar of economic growth. The Union Budget, which was released in July 2024, included significant reforms meant to encourage the expansion of the e-commerce industry in light of the government’s priority on encouraging digital commerce. These adjustments aim to promote investment in this quickly changing environment while also streamlining tax compliance and advancing equity. This article explores the budgetary provisions, with a particular emphasis on taxation along with compliance, and looks at how they fit into India’s larger development objectives while also having the potential to boost economic growth.

Reforming taxes: A step towards fair growth
The budget includes one of the biggest announcements: starting on August 1, 2024, many services offered by offshore digital companies—including e-commerce services—will no longer be subject to the Equalisation Levy. The Equalisation Levy, sometimes known by the term “Google Tax,” was imposed in 2016 as a way to levy taxes on digital transactions and make sure that foreign companies paid a fair amount of taxes on income earned in India. Although the tax had its intended function, it also presented businesses with compliance issues and was frequently perceived as impeding the smooth operation of international e-commerce companies in India.

The government hopes to lessen the cost of compliance for e-commerce businesses by doing away with the Equalisation Levy, which would foster an atmosphere that is more favourable to digital commerce. It is anticipated that this action will stimulate increased competition and innovation in the Indian industry by encouraging involvement from international IT companies. It also fits with India’s objective of levelling the playing field for all companies, regardless of where they are based, to encourage fair competition and customer choice.

The budget modifies Section 194-O of the Income Tax Act, lowering the TDS rate for online retailers from 1% to 0.1%, effective October 1, 2024, to reduce the compliance burden and ensure fair tax treatment.

Simplifying compliance: Paving the way for online sales
A number of compliance-related measures were also added to the budget, which should make the regulatory environment easier for e-commerce businesses to navigate. Significantly, the government has suggested permitting a credit between the tax deducted at source (TDS) and the tax collected at source (TCS) on salaries. This modification is important because it facilitates a more efficient tax reconciliation procedure and lessens the administrative load on businesses by streamlining the tax compliance process.

Delaying the plan to decriminalise TDS payment until the TDS statement filing deadline is implemented is necessary to further promote a more business-friendly environment. Companies and their management may become anxious if they fail to make TDS payments on time because of the potential for severe fines and even criminal prosecution. The government is demonstrating that it recognises the challenges of managing a business, particularly in an evolving and fast-paced sector like e-commerce, by decriminalising such delays. By making business easier, this action is probably going to encourage more corporations to come and operate within the Indian market.

Impact on digital inclusion and economic growth
India’s economy is growing at a considerable rate, due in large part to the e-commerce industry, which also promotes consumer choice, job development, and economic digitisation. The Indian e-commerce market is predicted to rise from INR 4600 crore in 2020 to INR 18,000 crore by 2025, according to a report by the India Brand Equity Foundation (IBEF). This growth would be fuelled by rising internet penetration, rising disposable incomes, and an expanding middle class.

This development trajectory is likely to be accelerated by the budget provisions targeted at the e-commerce sector. The government is making it possible for e-commerce platforms to grow and operate more profitably by lowering the burden of compliance and supporting fair taxation. Consequently, more employment openings are anticipated in the e-commerce industry itself as well as indirectly through the related supply chain, warehousing, and logistics industries.

Furthermore, the budgetary provisions are in line with India’s overarching development objectives, namely financial empowerment and digital inclusion. Small and medium-sized businesses (SMEs), the foundation of the Indian economy, could find e-commerce easier to access as a result of the Equalisation Levy’s removal and the TCS rates’ drop. The government is encouraging more participants to join the digital marketplace and encouraging entrepreneurship by eliminating obstacles to entry for these enterprises.

Complying with India’s development objectives
The budget’s emphasis on the e-commerce industry aligns with the government’s agenda for a “Digital India.” The goal of Digital India is to make the nation a knowledge economy and a digitally enabled society. It focusses on three areas: digital citizen empowerment, on-demand governance and services, and digital infrastructure that provides utility for all citizens. A key component of this strategy is the budgetary provisions that encourage e-commerce growth, as they contribute to building a strong digital commerce ecosystem that can meet the wide range of demands of India’s populace.

The government is also attempting to accomplish its objectives of inclusive development and poverty alleviation by supporting a more fair and competitive e-commerce market. E-commerce platforms serve as an essential conduit for small enterprises and craftspeople to expand their reach to a wider audience in India and worldwide. The budgetary measures are promoting an economy that is more inclusive and opening up financial possibilities for marginalised people by supporting the expansion of these platforms.

A poised step forward for sustainable development
The Indian government has made a calculated decision to support sustainable growth in the economy and ensure that the sector’s budgetary allocations are in line with the nation’s long-term development objectives. The government is establishing the foundation for a robust digital economy that has the potential to propel India’s economic growth in generations to come by lowering the burden of compliance, encouraging fair competition, and improving business-friendly conditions.

In conclusion, The Indian government’s emphasis on e-commerce shows how committed it is to fostering a vibrant digital economy, serving the needs of its people, and advancing general development.