These changes introduced two main updates:
- Section 194-O: E-commerce operators must now deduct 1% tax on the total sale amount or service fees from their online platforms. This deduction needs to be made when the amount is credited to the seller’s account or paid to them, whichever happens first.
- Section 206C(1H): Sellers are required to collect 0.1% tax on sales that exceed ₹50 lakh in a financial year. This tax must be collected from the buyer at the time of payment.
Read also – From Uncertainty to Stability: How Apna Godam Transforms Lives of Agricultural Workers
So What Is The Problem?
Solution provided by the Ministry but only to forward and Future Commodity Exchanges.
Vide Circular No. 17 of the year 2020
What Are Forward and Futures Trading and Spot Trading Platforms?
There are two types of electronic trading:
1. Forward, future, and options
2.Spot Trading
1. Forward, futures, and options (F&F) trading is regulated by SEBI under the central government. In F&F trading, price discovery and the processes of quality assessment, delivery, and payment are managed by licensed stock exchanges or clearing corporations.
Forward and futures trading in agricultural commodities in India involves contracts that enable participants to buy or sell a commodity at a set price on a future date. A forward contract is a private agreement between two parties to buy or sell a specific quantity of a commodity at a later date. These contracts are customizable and not typically traded on exchanges, which introduces some risk if one party does not fulfill the agreement.
In contrast, a futures contract is standardized and traded on exchanges. Futures have specific terms regarding the quantity, quality, and delivery date of the commodity. They are regulated by exchanges like NCDEX and MCX, which help reduce risk by guaranteeing the contracts.
2. Spot trading is regulated by the state government, and each state has its own agricultural laws. Unlike F&F contracts, spot transactions involve the direct trade of the commodity and payment, which often occurs immediately after the trade is executed. In India, spot trading in agricultural commodities typically takes 9+3 days for execution and settlement. The exact time frame may vary depending on the exchange, the type of commodity, and the trading platform. While trades are executed quickly, the settlement process, which involves transferring ownership and payment, can take up to three days.
Why Should Spot Trading Platforms Also Be Exempted from TDS?
F&F trading is exempt from TDS because the buying and selling of commodities occurs between anonymous parties. This means there is no direct contact between buyers and sellers, making it very difficult to retrieve tax records for TDS deductions before payments are made.
Spot Trading operates in a similar manner, with no direct contact between buyers and sellers. This also means that trades are anonymous. However, unlike F&F trading, spot trading is not exempt from TDS under the new finance act. This creates complications for Spot Trading Platforms because traders do not have past data on the TDS status of sellers. As a result, it is challenging to know how much tax they should deduct before making payments.
The Ministry of Finance has acknowledged these challenges. A CBDT circular point out the practical difficulties in applying the TDS and TCS rules in certain exchanges and Clearing Corporations. It notes that many transactions do not have direct contracts between buyers and sellers. And when a seller receives payment for goods worth over fifty lakh rupees in a year, they must collect a tax of 0.1% from the buyer at the time of payment, according to Section 206C of the Act. However, due to the anonymous nature of these trades, it is hard for the payer to determine the correct amount of tax to deduct.
Traders face similar challenges in both F&F Trading and Spot Trading. However, only F&F trading is exempt from TDS. This raises the question of why the exemption does not extend to Spot Trading, which experiences the same difficulties in determining past tax records in anonymous transactions. The Ministry of Finance has acknowledged these challenges, but lawmakers have yet to address this inconsistency in the application of the act.
According to Mr. Sanjay Agarwal, CEO of APNA GODAM, the current circular suggests that TDS and TCS rules can’t be applied because the trading methods on commodity exchanges do not involve direct one-on-one contracts. Similarly, Spot Trading platforms should also be exempt from these rules, with buyers and sellers remaining anonymous and transactions handled electronically with immediate clearing and settlement.
Mr. Agarwal has written to the Honorable Secretary of the Ministry of Agriculture requesting an extension of this exemption to include all licensed Spot Trading Platforms. He argues that SEBI-recognized commodity exchanges and state-licensed Spot Trading platforms operate under the same principles.
Conclusion
Spot Trading is a relatively new concept, and a couple of licenses have been issued so far. However, 16 States have made provisions for Online Trading Platforms, and soon there will be many regional Spot Trading Platforms operating like stock exchanges. But the road is bumpy for First Mover, as always.
It is important for the Finance Ministry to give LEVEL PLAYING FIELD to Spot Trading Platforms with Commodity Exchanges.
