Tax Collection at Source or TCS under GST laws means the tax to be collected by an ecommerce operator from the consideration received by it on account of supplies made by the supplier through the portal of such ecommerce operator.
TCS will be collected by the ecommerce operator before remitting the consideration to the actual supplier and pay the same to the government treasury. TCS shall be a percentage of the net taxable supplies.
The provisions of tax deduction at source were kept on hold by the government through various extension notifications, in order to allow the GST regime to settle down and to avoid undue hardships on the businesses.
However, the Central Board of Indirect Taxes and Customs (CBIC), Government of India, notified the provisions related to Tax collected at Source (TCS) with effect from 1.10.2018 vide Notification No. 51/2018 dated September 113, 2018.
This means that every electronic commerce operator, not being an agent, shall collect an amount calculated at such rate not exceeding one per cent, as may be notified by the Government on the recommendations of the Council, of the net value of taxable supplies made through it by other suppliers where the consideration with respect to such supplies is to be collected by the operator.
Electronic Commerce Operator – means any person who owns, operates or manages the digital or electronic facility or platform for electronic commerce. For example – Amazon, Flipkart, BookMyShow.
Electronic Commerce – means the supply of goods or services or both including digital products over a digital or electronic network.
Ecommerce Suppliers – means suppliers of goods or services carrying on supplies on Ecommerce Platforms
Rate of Tax Collection at Source (TCS)
In case of Intra State suppliers, TCS at the rate of 0.5 percent CGST and 0.5 percent SGST shall be collected at source and in case of Inter-state supplies IGST at the rate of 1 percent shall be collected.
Net Value of Taxable Supplies
For instance, if supplier A sells a product on Flipkart worth Rs 10,000 plus GST. Flipkart collects the amount from the customer and charges Rs 1,000 plus GST as its commission. Net taxable value to be transferred by Flipkart to supplier A shall be Rs 9,000 (10,000-1,000). So, the TCS to be collected before making transfers to the supplier A shall be 1 percent of Rs 9000.
Non-Applicability for Agents
Section 52 of the CGST Act, applies to all ecommerce operators ‘not being an agent’.
Agent -“agent” means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another;
Example of Agent -For instance, an ecommerce operator operates as an agent of Electricity Supply Company for payment of monthly electricity bill. In this case, the ecommerce operator is working as an agent and hence the TCS deduction of 1 percent is not required by the ecommerce platform, while paying back the money to the electricity supply company.
Threshold limit for electronic commerce operator and suppliers
For both ecommerce operators and suppliers of goods and or services on ecommerce platforms, the minimum threshold limit does not apply.
Compliance and Returns
According to section 52 (4), every ecommerce operator who collects TCS from suppliers who supplies goods or services through its portal is required to file a monthly return in Form GSTR-8 within 10 days from the end of the month. The return shall include details of outward supplies of goods or services or both effected through ecommerce operator to registered or unregistered persons, including the supplies of goods or services or both returned through it, and the amount of TCS collected during a month.
Matching of data
Every supplier who supplies goods or services or both other than notified services under section 9(5) is required to furnish a monthly return in GSTR-1 wherein the details of supply of goods or services through an ecommerce operator in TABLE -4C and TABLE-10 shall also be furnished. These details shall be matched with the corresponding details of State of place of supply and net taxable value furnished by ecommerce operator in monthly return (GSTR-8).
The amount in respect of any discrepancy which is not rectified either by the supplier in his valid return or the ecommerce operator in his return for the month in which discrepancy is communicated, shall be added to the output tax liability of the said supplier. An addition would be made in monthly return of supplier succeeding the month in which the discrepancy is communicated. This addition will be made in a case where the value of outward supplies furnished by the ecommerce operator is more than the value of outward supplies furnished by the supplier.
Interest on Mismatch
The supplier in whose output tax liability any amount has been added as above, is liable to pay the tax payable in respect of such supply along with interest, at the rate of 18 percent specified under section 50 on the amount so added from the date such tax was due till the date of its payment.
Many have an opinion that the TCS provisions will cause undue compliance burden on new and small Ecommerce start-ups. However, it must be noted that the TCS provisions were inevitable, as they were already part of the law and had been notified about a year back and only the implementation was delayed in order to avoid the undue hardships on the businesses during the GST teething phase.
The government eyes deeper penetration into the ecommerce business and mop up higher revenue collection, which had otherwise become tough because of difficulties involved in following and tracking the numerous small sellers listed on online platforms.
It has now targeted the ecommerce operators itself to penetrate deeper into the rather unorganised small sellers (having a turnover of less than 20 lakh and hence not registered under GST) segment and has rather organised the sector under a broader umbrella of ecommerce operators. In the long run, this will ensure better and centralised compliance, lesser revenue leakages for the government and level playing field for all online and ecommerce businesses.
For new and smaller startups the advice is to budget better for this increased compliance effort and cost as this is unavoidable as of now.
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