All of the leading e-commerce companies in India, such as Flipkart, Amazon, and Snapdeal, have been spending more money on marketing by reducing the prices and announcing discounts on their products. E-commerce firms, which spend on marketing and discounts, had always been deducting them from total revenues, presenting loss figure estimates and receiving tax concession. An explanation for this was sought by the Income Tax Department, From the leading companies like Flipkart and Amazon, to change the accounting system and pay the right taxes in full. 

After the announcement, an appeal was later filed by the Flipkart against the Income Tax Department, but they ultimately failed in the case. This defeat is all set to introduce a major change in the taxes imposed on the startup companies in the consumer market of India.  Although the announcement was announced in December, the public notification in the consumer market had not been issued. 

By presenting marketing costs and discounts as losses, every year the e-commerce companies were able to reap profits out of their losses and escaped paying taxes. In this case, since Marketing and Discount aren't a part of the capital expenditure, the Income Tax department has instructed that it must not be deduced from the total revenue, and this decision is being fought by companies like Flipkart and Amazon. 

In August 2017, the Income Tax Department ordered the Bengaluru Income Tax office to change this accounting system for Flipkart and Amazon, following which, in December, Flipkart had filed a lawsuit against the Income Tax Department's announcement. However, following its inquiry, the court ordered to change the income tax accounting method as per income tax department instructions. It must be noted that Capital expenditure is based on a period of 4 years to 10 years. 

In this case, with the implementation of Income Tax Department's orders, the amount spent on marketing will be accounted for profits, which will force all e-commerce companies such as Flipkart and Amazon to pay 30 percent tax. More than the e-commerce companies, this is a sad news for common people, as this announcement of the Income Tax department will mean no more discounts to customers, making it a huge setback for E-commerce companies. 

For instance,  if Flipkart spends 100 crores a year in marketing, at present, the 100 crore marketing cost will be deducted and the tax concession will be obtained. But with the new announcement, the 100 crores capital expenditure will be split evenly in 10 years and tax concession can be obtained every year for only 10 crores. This means that the rest of the amount must be presented as profit, which means payment of  30 percent tax. 

Even after such a situation, the e-commerce firms cannot continue to announce discount sales. And this will benefit exclusive shopping outlets and merchants, who had lost their business due to the excessive discount of e-commerce companies, thereby creating a situation where people will be forced to go to the shops and buy things. But with the existing huge competition in  Indian e-commerce market, leading companies such as Flipkart and Amazon will definitely be thinking of alternative ways to retain customers with new ways of discounts and offers.