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The Tax Collected at Source (TCS) has come into effect from 1st of October 2018, in a bid by the Government of India to track tax payments across the eCommerce industry. TCS under GST is provisioned under Section 52 of the CGST Act and impacts sellers and eCommerce operators across multiple sectors.
This blog will tell you everything you need to know about TCS and who it applies to.
What is TCS?
The TCS under GST refers to the tax collected by an eCommerce operator from the considerations it receives from a goods or services supplier who sells through the operator’s online platform. The eCommerce operator will collect an amount as a percentage of the net taxable supplies at the rate of 1% w.e.f. 2022 onwards. The components of a TCS are the CGST (0.5%) and SGST (0.5%).
Only those operators who own and manage eCommerce platforms are liable to collect TCS. in other words, it is cut by operators who receive the consideration amount from customers on behalf of a seller. TCS is applicable even if the seller delivered the goods and services directly or received the payment via an eCom operator.
While the TCS has increased administrative costs for online marketplaces like Flipkart and Amazon, levying it increases compliance. Even if their turnover is less than the threshold turnover limit for GST registration, dealers who sell their goods or services online still need to register under GST to claim the tax deducted by eCommerce operators.
How is TCS calculated?
TCS is calculated on the gross payment amount. eCommerce operators or E-marketplaces will deduct it at 1% at the time of the sales amount for the goods or services getting credited.
For example, a product selling for INR 5,000/- on Amazon invites a tax of 1% which is deducted by Amazon. INR 50 will be deposited to the government. From the 1st of January 2022, all eCommerce aggregators in the restaurant and food delivery businesses will be liable to pay tax for the services they provide. Unregistered suppliers and individuals operating hotels and taxi/cab services are exempted from the TCS provisions.
GST on TCS applies to the net value of the goods sold through the eCommerce operator.TCS will be deducted in the same month as the supply of goods or services. The same is credited within 10 days from the month end to the government by submitting form GSTR-8. The IGST will be paid to the central government, while the SGST is made to the respective State governments.
The Impact of TCS on eCommerce under GST
UPDATE: From 01/08/2023, companies with a B2B transactional value of over INR 5 Crore need to generate e-invoices which was formerly applicable to companies if their annual revenue exceeded INR 10 Crore.
ECommerce operators must register under GST in every state that they’re operating. Looking at it from the government’s lens, tax evasion will go down when there’s a mechanism to collect tax at each and every transaction.
TCS in GST regulates online sellers by ensuring that the tax is deposited on time with the government. The other benefits are:
Input Tax credit
Introducing the GST component implemented an input tax credit for eMarketplaces, which created a direct link between the entered and final product.
Everything is registered
In eCommerce,all vendors/suppliers must be registered even if their turnover doesn’t touch INR 20 lakhs. No one falls through the cracks!
30 June 2022 Update: The Goods and Services Tax (GST) Council announced that compulsory registration will be waived for small online players whose annual turnover does not exceed INR 20 Lakhs. The person should also not be making any inter-state taxable supplies.
The announcement is tentatively expected to take effect from January 1, 2023 and will benefit ~1.2 lakh small traders, including women entrepreneurs, micro and small businesses.
Preventing fraudulent activities
Deducting TCS and remitting the same to the government in the same month as the sale places the transaction on record. The same can be reconciled by both the marketplace and seller, thus establishing mutual trust between the parties.
Documents required to register for TCS
It is mandatory for all eCommerce operators that are liable to collect TCS and sellers selling through online portals to register under GST. The only exemption from registration for sellers is those whose aggregate turnover falls below INR 20 Lakhs. The eCommerce operator will need to pay the GST. The following documents will be asked for
- Self-attested PAN card copy.
- Photograph (JPEG),Email Address and Mobile Number of authorized signatory
- GSTIN and IEC if available
- Proof of office address if self-owned.
- Copy of property tax receipt. If the office space is rented, then a copy of the NOC/rental agreement will suffice.
- Authorization letter in case it’s an LLP or partnership
- Who is an e-commerce operator as per GST?
An electronic commerce operator is a person or business entity who owns or operates an electronic facility for the sale and purchase of goods.
- How do I claim TCS collected by eCommerce?
The amount of TCS paid by the eCommerce operator to the government can be viewed in the GSTR-2 of the actual registered supplier on whose account the collection has been made. The statement recorded on the supplier’s cash ledger will reflect the tax collected. Suppliers can accordingly claim the credit via GSTR 2A.
- Will an e-commerce operator be liable to pay tax in respect of the supply of goods or services made through it?
Yes, an eCommerce operator is liable to pay tax with respect to the sale of goods and/or services through it if the supplier is liable to pay tax in relation to supplying the said services. This is in accordance with Sec 9(5) of the CGST Act, 2017. A similar provision for inter-state supply can be looked up under Sec 5(5) of the IGST Act, 2017.
- Is a seller supplying goods or services through e-commerce operators entitled to threshold exemption?
No, if the supply is made via an eCommerce operator, the threshold exemption is unavailable. However, the supplier is exempted if the operator needs to pay the tax on behalf of the supplier under a Section 9(5) notice of the CGST Act 2017.