BAJAJ BROKING
January 27, 2025
4 mins read
The E-commerce industry has grown by leaps and bounds in India in recent times. Today, consumers buy all sorts of products and services from online channels. Despite that, the industry faces peculiar challenges, like inadequate infrastructure in many small towns & villages, complex tax laws, etc. In previous budgets, Finance Minister Ms. Nirmala Sitharaman attempted to address these challenges. For example, Budget 2024 cut down the tax deducted-at-source (TDS) for e-commerce operators from 1% to 0.1%. On similar lines, Budget 2025 is expected to rationalise the tax structure for e-commerce players and improve infrastructure so that their true potential can be unlocked.
Gone are the days when people used to order only books and movie CDs or DVDs through online retailers. Today, all over India, consumers purchase a variety of products and services through e-commerce players. Be it groceries, books, clothes, apparel, eyewear, and even medicines, online players have become the go-to channel for a considerable number of consumers in India.
The tremendous growth in the sector notwithstanding, e-commerce players still face many challenges in India. First, the quality of physical and digital infrastructure is not up to the mark in many Tier 2 and Tier 3 cities. Two, certain tax rules governing e-commerce players are still quite complex. Three, many small enterprises and traditional artisans are not able to reap the benefits of online channels for a variety of reasons. Finance Minister Ms. Niramala Sitharaman has tried addressing these challenges in recent years through the Union Budget. Hence, it is expected that even the upcoming Budget 2025 will continue giving a boost to e-commerce players by solving their issues.
Why is the E-commerce Industry a Key Focus Area?
E-commerce is one of the most important sectors of the Indian economy today. Be it metro cities or small towns and villages, consumers are increasingly relying on online channels to purchase various kinds of products and services due to the sheer convenience and also better prices than offline channels. That said, the e-commerce sector faces several issues, like poor digital infrastructure in rural areas, complex tax laws, and high logistics costs. Hence, the Union Budget 2025 provides the Government an opportunity to address some of the issues of the e-commerce industry to unlock its true potential.
Role of Union Budget in Shaping E-commerce Industry
In the last few years, the Union Budget has played an important role in addressing the issues faced by the e-commerce industry. For example, while presenting Budget 2022, Ms. Sitharaman announced the setting up of 75 digital banking units. Such units help secure digital payments, thereby giving a boost to e-commerce. In Budget 2024, Ms. Sitharaman reduced the tax deducted-at-source (TDS) for e-commerce operators from 1% to 0.1%. This move was universally appreciated by e-commerce players because it aimed to provide working capital relief to small enterprises in the e-commerce space. Budget 2024 also announced the Government’s move to set up e-commerce export hubs across India through the public-private-partnership (PPP) route. This move was aimed at helping micro, small, and medium enterprises (MSMEs) and traditional artisans sell their products in global markets.
Expected Budget Allocations[1]
Policy Updates Likely to Impact E-commerce Industry
One of the Big 4 accounting organizations, KPMG, said in a note on its website that the Union Budget 2025 should do away with 0.1% TDS on e-commerce transactions and on purchase of goods because it does not significantly add to tax revenues and results in considerable administrative inconvenience. An Economic Times report said that Budget 2025 is expected to maintain the government’s support for Digital India. It further said that government investments in digital infrastructure will boost e-commerce by providing improved connectivity, payment systems, and tech improvements.
Another ET report mentioned that industry leaders want the Government to relax the rules for e-commerce players, thereby making it easier for them to do business. For example, stakeholders expect the Government to relax the need for a physical place of business in every state and instead allow for a virtual place of business. Further, a LiveMint report said that industry leaders expect the Budget to invest in roads, railways, and ports to support growth in warehousing and e-commerce.
The Budget 2024’s announcement with regard to the creation of e-commerce export hubs across India through the PPP mode is one of the most salient announcements of recent times. This move will allow really small businesses to sell their products in international markets. Most small businesses and traditional artisans do not have the wherewithal to access global markets. Such export hubs will make it easier for them to deal with complex export processes to showcase their products globally. Moreover, the export hubs will have improved warehousing and logistics infrastructure, which will allow small enterprises to ship their products worldwide.
Budget 2024’s move to reduce TDS from 1% to 0.1% for e-commerce operators shows the Government’s commitment to reduce the tax burden on the industry. Based on announcements in the past, it seems that Budget 2025 can also make it easier for e-commerce players, especially small enterprises, to do business.
Existing Issues in E-commerce Industry
One of the major challenges facing the e-commerce industry is poor infrastructure in many Tier 2 & 3 cities, which badly affects the last mile delivery. Besides, a lot of customers prefer cash on delivery in India, which makes managing working capital and liquidity difficult for e-commerce players in the country.
Moreover, the current interstate taxation system is such that companies are compelled to maintain warehouses in each state. This is complex not only from a tax perspective but also from a logistics viewpoint.
Industry Expectations to Overcome Hurdles
According to a report published in LiveMint, stakeholders expect the Government to work on improving last mile connectivity to give a boost to ecommerce players, which can be done by developing industrial parks and investing in railways, ports, and roads. Further an Economic Times report said that the government is expected to give a boost to digital infrastructure, which will help e-commerce and retail sectors. But, the report highlighted that the government should create a level-playing field between offline and online players and regulators should take an action against unfair pricing practices. Overall, the Government is expected to provide a favourable business environment to online and offline players so that businesses that provide a better value to customers succeed.
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Share this article: 
The e-commerce industry expects the Budget 2025 to invest in roads, railways, and ports to make it easier for them to do business. The Budget 2025 is also expected to do away with 0.1% TDS on e-commerce transactions and on the purchase of goods. Besides, the government is expected to continue supporting Digital India to improve connectivity and payment systems.
Union Budget 2025 can benefit the e-commerce industry by simplifying tax laws, improving physical & digital infrastructure, and relaxing regulations governing the e-commerce sector.
Budget 2024’s move to set up e-commerce export hubs across the country can be a focus area for Budget 2025 as well, as it can be a boon for small enterprises and traditional artisans.
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