Admitting that the proposed Goods and Services Tax (GST) is a key reform which will simplify the tax compliance, the e-commerce players on Thursday, however, said the proposed tax collection at source will hurt lakhs of small sellers by making online sales expensive and cumbersome for them.

"GST is a key tax reform, which will simplify the tax compliance burden for the entire economy. However, the proposal of tax collection at source, directed only at e-commerce marketplaces, in the Draft Model GST Law, will hurt lakhs of small sellers by making online sales expensive and cumbersome for them," said Kunal Bahl, co-founder and CEO of Snapdeal.

"It is a measure, which goes against the spirit of making India digital and improving the ease of doing business in the country. We are positive that the government will address this crucial concern," he added.

Bahl was speaking at a seminar organised by the industry chamber Ficci.

The draft Model GST Law that is due to be finalised soon has proposed a clause called Tax Collection at Source (TCS - Section 56), mandating e-commerce marketplaces to deduct 2 per cent of the transaction value and submit it to the government.

As an estimate, this clause would lead to locking up about Rs 400 crore of capital per annum for the e-commerce sector.

In addition, it would result in a loss of an estimated 1.8 lakh jobs, putting a halt to the growth and investments in the sector, the Ficci statement said.

"At the moment, the e-commerce sector in India is at less than 2 per cent of the entire retail segment and moreover, at a very nascent stage, with a promise of high growth in the future," said Ficci Secretary General Didar Singh.

"Subjecting the sector to a major compliance at such an early stage will not only result in slowing it down but also deter the benefits that e-commerce fosters in terms of employment creation and giving a boost to both the manufacturing and services space by providing an apt platform," he added.

"We remain concerned about the Tax Collection at Source provision which, we believe, will negatively impact the growth of marketplaces at a stage when the industry is still in its infancy," said Amit Agarwal, Country Head, Amazon India.

"The Tax Collection at Source clause would lead to blockage of approx. Rs 400 crore of working capital into the system, and will discourage sellers to come online. Also, the government needs to set a level playing field as the clause is not pertinent to the off-line retail segment," said Sachin Bansal, co-founder & Executive Chairman of Flipkart.