Flipkart told to reclassify discounts as capital expenditure

By

Maverick Martins

Published
Jan 23, 2018

​In what could prove to be a major setback to e-commerce players across India, Flipkart has been asked by the income tax department of India to reclassify discounts as capital expenditure.
 

The Indian e-commerce giant lost an appeal against the tax department which to prove to be detrimental to the entire e-commerce industry that relies heavily on the deep discounting model to attract customers to their platforms.
 
Post the ruling, Flipkart and other e-commerce retailers will have to reclassify its marketing expenses and discounts under capital expenditure which means these firms will have to pay heavy taxes.

The matter had been going on before the Commissioner of Income Tax (Appeals), Bengaluru from August 2017 with the IT department maintaining its stand that discounts and marketing expenses should come under capital expenditure while e-commerce majors refusing the same due to additional tax burden.
 
However, Flipkart is now looking to challenge the order at the Income Tax Appellate Tribunal (ITAT) in the next few days senior executive at Flipkart told the Economic Times. Other e-commerce firms will be giving a close watch on the development of the proceedings as it is likely to impact them in the long run.
 
“Capital expenditure versus revenue expense is an old issue for the tax department. The issue is if the discounts or marketing spends are revenue expenditure, then that would come under P&L of a company and would be deducted from the total revenues in a year,” Maulik Doshi, partner, transfer pricing and transaction advisory, SKP Consulting told ET.