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Taxation Of E Commerce & Its Challenges In India

1077 words - 5 pages


The advancement in the technological world gave rise to E-commerce. It is the new buzzword of the 21st
century. In terms of accounting "E-commerce is the process of buying, selling, or exchanging products, services, or information via computer networks through the use of internet”. It offers a new way of conducting, managing and executing business transactions using modern information technology without any geographical barriers. It has redesigned the traditional mode of business which is based on –physical presence and physical delivery of goods and services. E-commerce is any transaction completed over a computer-mediated network that ...view middle of the document...

Often transactions are concluded over the internet which pose challenges as regards place of residence of the contracting parties, place of conclusion of contracts, acceptance of the offer, characterization of the income generated etc. Absence of specific guidelines in this regard has result in loss of revenue to the taxation authorities and thereby the government.

Issues in E-Commerce Taxation

Some of the key issues raised by E-commerce under the present Tax regime are as follows:o How the transactions will be traced and how to check on tax evasion? o What would form the basis of taxation (for eg: residence based taxation)? o What will be considered as a Permanent Establishment in case of non-resident? o What will be the base of allocation of tax revenues between countries? and a lot more. Many of the e-commerce websites such as,, etc. are operated by entities incorporated outside India. Many items sold online, such as music, videos, and software, can be downloaded directly from the web making the tracking of their dissemination problematic. This has also given rise to the issue that whether such transactions should be considered as business profits, royalties or technical fees. In India, taxability in the hands of the non-residents is based on the source rule. Business profits are ordinarily taxed in the source country only if the overseas entity creates a Permanent Establishment (‘PE’). In general terms, PE is defined to mean a fixed place of business though which the business of an enterprise is wholly or partly carried on. But this concept becomes irrelevant in the context of E-commerce transactions in absence of physical location. The Internet is a network of networks and it cannot be controlled or owned by one person and is capable of rapidly transmitting packets from one computer to another. The International Tax commentary issued by Organization for Economic Cooperation and Development (OECD), clearly states that a non-resident enterprise with an Internet website alone would not be regarded as having PE in the country in which the website is located. Secondly, the determination of the source country is challenging because the income is tied to...

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