Understanding Tax Collected at Source (TCS) within the Goods and Services Tax Framework

Starting October 1, 2018, nearly all e-commerce operators began collecting Tax Collected at Source (TCS), with only a few specific exceptions. This article provides a comprehensive overview of TCS and its operational aspects under India's Goods and Services Tax (GST) regime.

What is TCS under GST?

Under GST, Tax Collected at Source (TCS) refers to the tax an e-commerce operator collects from the payment it receives on behalf of a supplier. This applies to suppliers of goods or services who utilize the operator's online platform for their sales. TCS is calculated as a percentage of the net taxable supplies. The legal framework for TCS under GST is outlined in Section 52 of the Central Goods and Services Tax (CGST) Act.

IMS: The Future of Compliance Master your IMS workflow and stay ahead of the curve. Discover the Changes

Who is Required to Collect TCS under GST?

Specific e-commerce operators, those who own, manage, and operate online platforms, are mandated to collect TCS. This obligation arises when operators handle customer payments on behalf of their vendors or suppliers. Essentially, when an e-commerce operator disburses funds collected from customers to vendors, they must first deduct an amount as TCS and then remit the net balance.

However, certain services provided through an e-commerce platform are exempt from TCS provisions:

• Hotel accommodation or club services offered by unregistered suppliers.
• Passenger transportation via radio taxis, motor cabs, or motorcycles.
• Housekeeping services, such as plumbing or carpentry, when provided by unregistered suppliers.

For instance, if M/s.XYZ stores, a proprietorship, sells apparel through Flipkart, Flipkart (as the e-commerce operator) is responsible for deducting TCS before processing the payment collected for XYZ.

When Does the TCS Collection Liability Arise?

E-commerce operators are required to collect TCS at the time of making a payment to the vendor. This payment represents the consideration gathered on the vendor's behalf for supplies made via the online portal. The tax is collected based on the net value of taxable supplies.

What is the Applicable TCS Rate?

Suppliers of goods and/or services transacting through e-commerce operators will receive payments after a TCS deduction of 0.5%. This rate was implemented via CGST Notification 15/2024 dated July 10, 2024. Previously, the rate was 1% until July 9, 2024, as per Notification no. 52/2018 under the CGST Act and 02/2018 under the IGST Act.

For intra-state supplies, TCS is collected at 0.5%, comprising 0.25% under CGST and 0.25% under SGST. Similarly, for inter-state transactions, the TCS rate is 0.5% under the Integrated Goods and Services Tax (IGST) Act.

GST Registration Requirements for TCS Provisions

E-commerce operators obligated to collect TCS must mandatorily register under GST, without any threshold limit exemption. Similarly, sellers who supply goods through online portals of e-commerce platforms are generally required to register under GST, though there are a few exceptions.

Key registration conditions include:

• All e-commerce operators required to collect TCS must register under GST.
• Individuals supplying through an e-commerce operator must register, except for those providing services specifically notified under Section 9(5) of the CGST Act.
• Section 9(5) encompasses services like passenger transport by radio taxi or motorcycle, accommodation in hotels/guest houses for residential/lodging purposes (from unregistered suppliers), or housekeeping services (from unregistered suppliers). In these specific scenarios, the e-commerce operator is responsible for paying GST and fulfilling compliance. Consequently, suppliers providing these Section 9(5) services are not required to register if their aggregate turnover does not exceed the Rs.20 lakh or Rs.40 lakh threshold for registration.
• Furthermore, service suppliers using e-commerce platforms are exempt from GST registration if their total turnover is below Rs.20 lakh or Rs.40 lakh, assuming they do not engage in inter-state supplies.
• Conversely, suppliers of goods selling via an e-commerce platform are not exempt from registration.
• An e-commerce company must register for GST in every state where it conducts business involving the supply of goods or services.

Due Date for Depositing TCS

TCS is deducted in the month during which the supply occurs. The collected tax must be deposited to the government's credit within 10 days following the end of the supply month.

Tax collected is paid as follows:

• IGST and CGST are paid to the central government.
• SGST is paid to the respective state governments.

How to Calculate the Taxable Value for TCS

The amount of tax collected is based on the 'Net Value Of Taxable Supplies'. This net taxable value is calculated by:

Total value of taxable supplies of goods and/or services (excluding services notified under GST law by all registered persons) Less: Taxable supplies returned to suppliers via the e-commerce operator Equals: Net Value of Taxable Supplies

For example, M/s.XYZ Ltd, a registered supplier, made supplies worth Rs.55,00,000 through an e-commerce operator in September 2018. Goods valued at Rs.5,00,000 were returned to XYZ Ltd during the same month. In this case, the net value of taxable supplies for TCS collection is Rs.50,00,000. If the TCS rate was 1%, then Rs.50,000 would be deducted by the e-commerce operator, resulting in a final payment of Rs.49,50,000 to the supplier.

Which Form is Used for Filing TCS Returns?

E-commerce operators are required to file GSTR-8 by the 10th day of the month following the month in which the tax was collected. This return can only be filed once the collected tax has been deposited with the government. For example, the deadline for GSTR-8 for December 2021 was January 10, 2022.

Utilizing GSTR-8 Data by E-commerce Sellers in GSTR-2A

The information submitted by operators in GSTR 8 becomes accessible to all suppliers in their GSTR 2A after the GSTR-8 filing deadline. It's important to note that these credit details will not appear in the GSTR-2B return. The collected tax is reflected in the electronic cash ledger of the respective suppliers, allowing them to claim the credit after reconciling their supplies with the GSTR 2A details.

Once filed, GSTR-8 cannot be revised. Any discrepancies identified during the matching and reconciliation of supply data with GSTR 2A will be communicated to both the operator and the supplier. If such discrepancies are not resolved within the stipulated timeframe, the outstanding tax amount will be added to the supplier's liability, requiring them to pay the difference along with any applicable interest.

E-Invoicing's Impact on TCS and E-commerce Operators

The e-invoicing framework extends to e-commerce operators (ECOs), enabling them to report invoices to the Invoice Registration Portal (IRP). These invoices are typically raised by ECOs on behalf of their online suppliers.

E-commerce operators should adhere to a comprehensive procedure for integrating their Enterprise Resource Planning (ERP) systems with the IRP's sandbox environment. For further information, consult the article titled “e-Invoicing Impact on TCS and e-commerce operators under GST”.

Implications of TCS Provisions

From the perspective of e-commerce operators, the implementation of TCS provisions necessitated GST registration in every operating state by October 1, 2018. Smooth business operations under these rules require robust ERP system integration. For suppliers selling through e-commerce platforms, a portion of their working capital might be temporarily blocked until they file their returns and claim the excess taxes paid. This could potentially hinder Small and Medium Enterprise (SME) vendors from utilizing online marketplaces.

Since January 1, 2022, e-commerce aggregators involved in food delivery services or cloud kitchens became liable to collect tax on services provided through their platforms. However, restaurants offering accommodation with a daily tariff exceeding Rs.7,500 per unit are excluded. This new regulation does not apply to supplies already covered under Section 52. An update from December 21, 2021, expanded the scope of passenger transport motor vehicles under Section 9(5) to include services rendered via omnibuses and other motor vehicles, moving beyond just radio taxis or cabs.

For the government, these TCS provisions are expected to significantly reduce tax evasion by ensuring tax collection at each transaction point.