TCS Under GST Demystified

Goods and Service Tax (GST) after coming into force with effect from 01/07/2017 is still `Work in Progress’  and registered and non-registered persons have to be aware about the progress taking place in GST from time to time.

Tax Collected at Source (TCS)  under GST is one such area which  still remains unclear to a lot of people.  Author has tried to demystify the various aspects of TCS duly updated till the date of publication:

 1. Who is an E- Commerce Operator?

As per Section 2(44) of the CGST Act, 2017, electronic Commerce means the supply of goods or services or both, including digital products over digital or electronic network.

As per Section 2(45) of the CGST Act, 2017, electronic Commerce operator means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce.

2. Who is liable to collect TCS under GST?

Certain E-commerce operators who own, operate and manage e-commerce platforms are liable to collect TCS with effect from 1st October 2018. TCS applies only if the operators collect the consideration from the customers on behalf of vendors or suppliers. In other words, when the e-commerce operators pay the consideration collected to the vendors they have to deduct an amount as TCS and pay the net amount to vendor.  Lately some of the e-commerce operators have stopped collecting the consideration to avoid the TCS related formalities.  For example:  Booking.com which is a popular e-commerce operator for hotel industry has directed its guest to pay directly at the hotel concerned.

Persons who supply goods or service or both, other than supplies specified u/s 9(5) through such e-commerce operator who is required to collect TCS u/s 52 has to compulsorily register  as per provision of section 24(ix).However ,the person making supplies of service , other than supplies notified u/s 9(5) is allowed to take benefit of threshold limit vide notification no. 65/2017 dated 15/11/2017 .

Supplies presently notified u/s 9(5):

1. Hotel accommodation/clubs (unregistered suppliers)

2. Transportation of passengers – radio taxi, motor cab or motorcycle

3. Housekeeping services like plumbing, carpentry etc. (unregistered suppliers)

3. What is the rate of TCS under GST?

The dealers or traders supplying goods and/or services through e-commerce operators will receive payment after deduction of TCS @ 1%. The rate is notified by the CBIC in Notification no. 52/2018 under CGST Act and 02/2018 under IGST Act. This means for an intra-state supply, TCS at 1% will be collected, i.e 0.5 % under CGST and 0.5% under SGST/UTGST. Similarly, for a transaction between the states, the TCS rate will be 1%, i.e under the IGST Act.

4. How to compute TCS under GST?

The total value of taxable supplies of goods and/or services (other than notified services under GST law by all registered persons)

Less: Taxable supplies returned to the suppliers through the e-commerce operator

= Net value of Taxable Supplies

5. What is the correct valuation methodology for ascertainment of GST on TCS under the provisions of the IT Act 1961?  

Section 15(2) of CGST Act specifies that the value of supply shall include “any taxes, duties cesses, fees and charges levied under any law for the time being in force other than CGST, SGST/UTGST Act, if charged separately by the supplier.”

Circular No. 76 dated 31/12/2018 has clarified that as per the above provisions, taxable value for the purposes of GST shall include the TCS amount collected under the provisions of the Income Tax Act since the value to be paid to the supplier by the buyer is inclusive of the said TCS.

6. When will the liability of collecting TCS arise? 

TCS will be collected by e-commerce operators while making a payment to the vendor. This payment will be the consideration collected on the vendor’s behalf for the supplies made by him via the online portal. This tax will be collected on the net value of taxable supplies.

7. Due date for depositing TCS?

TCS will be deducted during the month in which the supply is made. It will be deposited within 10 days from the end of the month of supply to the credit of the government.

8. Which form can one use to file TCS returns?

E-commerce operators have to file GSTR-8 by 10th of the next month in which the tax was collected. This return will only be filed once the tax collected has been deposited to the respective credit of the government. For instance, the due date for GSTR-8 for February 2019 is on the 10th of March 2019.

The details submitted by the operators in GSTR-8 will be available to all the suppliers in GSTR 2A. The supplies will be available GSTR 2A after the due date of filing GSTR-8. The tax collected will be reflected in the electronic cash ledger of the respective suppliers. The suppliers can claim the credit accordingly after matching and reconciling their supplies with the details in GSTR 2A.

9. Preparedness for implementation of TCS provisions

From the e-commerce operators viewpoint, they must register under GST in every state in which they operate before 1st Oct 2018, which is the effective date of implementing TCS provisions. The ERP systems have to be well integrated to apply these provisions in the day to day businesses smoothly. Moreover, the working capital of the suppliers selling through an e-commerce operator will be blocked until they file their return and claim the excess taxes paid. This can prevent SMEs vendors from selling goods or supplying services on the online portal.

(The author is a Jaipur based  practicing Chartered Accountant and can be reached on  09166014821, caadityarawat1@gmail.com)