Income Tax Department asks Flipkart to reclassify discounts as capex

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Flipkart has lost an appeal against the Income Tax Department after it was asked to reclassify marketing expenditure and discounts as capital expenditure, according to a report in The Economic Times.

This ruling was made in December but has not been made public, according to the report. The report also said that a senior official has confirmed the development and said that the company will challenge the order at the Income Tax Appellate Tribunal (ITAT) in the next few days.

Last year, the I-T Department asked e-commerce companies to restructure their marketing expenses under capital expenditure. E-commerce companies deduct discounts and marketing expenditure from their revenue, which leads to losses.

But the I-T Department says that money spent on marketing is not a cost but capital expenditure because it creates intangibles and potentially generates revenue.

This change in the way ecommerce companies are taxed could help them become profitable by increasing revenue.

According to the report, Flipkart and Amazon could have to pay 30 percent annually in tax when this move comes into effect.moneycontrol