The rapid growth of e-commerce in India is prompting the government to look at this sector as a major source of tax revenue collection in the coming years—both from direct and indirect tax angles.

On the heels of the government introducing a separate chapter in the draft goods and service tax (GST) law to tax e-commerce transactions, the income tax department has also zeroed in on the e-commerce sector to increase its revenues from tax deducted at source (TDS).

In its action plan for 2016-17 released earlier this month, the Central Board of Direct Taxes has asked taxmen to look at the scope of increasing TDS from e-commerce.

“E-commerce has emerged as a huge business in the past few years. This involves advertisement on the websites/portal of various organized and unorganized agencies, payments for job work—building website, translation of pages, data entry of text, research etc. This area promises to yield significant revenue,” the action plan said.

To plug possible revenue leakage from e-commerce transactions, the draft GST law also proposes tax collection at source for e-commerce companies. This means that any payment made to a supplier by an e-commerce company will be subject to tax collected at source. This is expected to significantly increase the compliance burden for e-commerce companies as they will need to file a statement providing details of all supplies made through the e-commerce platform.

The focus of the revenue authorities on e-commerce could be explained by the fact that the sector has grown at a rapid pace in the past few years and is expected to grow at a fast pace at least for the next few years as well.

An April 2016 report by the Confederation of Indian Industry and Deloitte Touche Tohmatsu India LLP on the Indian e-commerce sector forecast that while the business-to-business segment is expected to more than double from $300 billion in 2014 to $700 billion in 2020, the business-to-consumer segment will grow more than seven times from $13.6 billion to $101.9 billion.