TCS under GST

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E-commerce companies will from 1 October have to deduct 1 percent tax collected at source (TCS) before making payments to their suppliers.

The Finance Ministry Thursday notified TCS at the rate of 0.50 percent of the net value of intra-state taxable supplies made through the e-commerce portals by other suppliers in the Central Tax law.

States too would follow suit and notify levy of 0.50 percent SGST on intra-state supplies.

In the case of inter-state supplies by the e-commerce companies, Integrated GST (IGST) at the rate of 1 percent would be deducted in the form of TCS while making payments to suppliers.

The ministry had last week notified 1 October as the date for implementation of the TCS provision under the Goods and Services Tax (GST) law. The law provided for levy of up to 1 percent TCS.

EY Tax Partner Abhishek Jain said, "As the law had provided a levy up to 1 percent, the e-commerce industry was awaiting this release of the exact rate of TCS essentially to configure it into their system."

AMRG & Associates Partner Rajat Mohan said the government has notified operation of TDS provisions on payments made by government agencies and TCS provisions for specified e-commerce operators effective 1 October 2018.

"These twin provisions are expected to further deepen the penetration of tax authorities in the economy, and it is likely to carve out widespread tax evasion of not only indirect taxes but also direct taxes," Mohan said.

The GST, which subsumed over a dozen local taxes, was rolled out from July 1, 2017. However, to make it simpler for businesses in the initial months of rollout, TDS/TCS provisions of GST laws were kept in abeyance till 30 June. Later on, it was deferred till 30 September, 2018.

TCS provision would increase compliance burden for e-commerce companies but help government in checking tax evasion.

Meanwhile, industry body IAMAI Thursday termed the provision of ‘Tax Collected at Source’ (TCS) for e-commerce players as an “unfair liability imposition” on the sector, noting that it will create operational challenges.

E-commerce companies have been mandated to deduct one percent TCS before making payments to their suppliers with effect from 1 October.

The association pointed out that online marketplaces, as recognised by the IT Act 2000, are intermediaries only providing a technological platform and “are not actually engaged in the act of retail trade”.

“Mandating technological platforms to collect GST for retail activities undertaken by sellers on-boarded on their platform is a contradiction of the intermediary role played by such platforms; and a forceful imposition of undertaking tax liabilities for activities beyond their remit,” it asserted.

IAMAI argued that any service provider of certain category of service should not be burdened with tax liabilities of other forms of services, even though the former may facilitate sales.

“TCS will create compliance burdens for MSME/petty producers conducting businesses online. Start-up online marketplaces now face a greater challenge to onboard MSME sellers on their new platforms because of the mandatory registration for online sellers as mandated due to TCS,” it said.