In what would have come as a relief to e-commerce marketplaces such as Amazon and Flipkart, the proposed tax collected at source (TCS) on them under the goods and services tax (GST) is to be capped at 1 per cent, the GST Council has decided. The draft law had proposed a levy of 1 per cent without any limit. Mentioning the cap in the law will ensure the levy remains below that level.

"The council has decided to provide for up to 1 per cent TCS," a senior government official told ET. At its meeting on Saturday, the GST Council approved the central GST (CGST) and integrated GST (IGST) laws. These will now be introduced in Parliament during the second half of the Budget session that begins on March 8. The government hopes to roll out GST from July 1.

Industry had demanded that TCS be scrapped as it could lead to a steep rise in transaction costs and also discourage ecommerce, but states had wanted the levy. The TCS provision will allow authorities to track transactions carried out through ecommerce platforms and ensure compliance.

Some states such as Karnataka, home to a number of ecommerce players, had proposed this levy for the first time and then subsequently pushed for it within the GST framework. The supplier of goods can set off TCS against its final GST liability. Theoretically, the levy could be even lower than 1 per cent. "Ecommerce industry would

"Ecommerce industry would be relieved to see TCS capped at 1 per cent. In any case, the purpose of TCS is to track the sales by the vendors on ecommerce platforms which can be achieved with a much lower rate (than 1 per cent) as well," said Pratik Jain, indirect tax leader, PwC India. "They would also hope to get clarity as to whether registration for TCS would be state-specific or on a centralised basis through IGST mechanism."

A lower rate helps only to an extent as the burden of compliance still remains, experts point out. "While it helps that the value of TCS has been capped, the fact that both ecommerce companies and vendors will still have to do substantial compliance and their money will be stuck in the system will impact the sector negatively," said Bipin Sapra, partner, EY.

Morgan Stanley estimates India's ecommerce market will swell to $119 billion by 2020. The government sees ecommerce as having a huge potential for job creation by providing market access to small entrepreneurs and businesses that would find setting up physical retail establishments too expensive.