Parellel Provisions of TDS Under Income Tax And TCS Under GST On E-Commerce Operators And Its Implications
To curb the tax evasion and widen the tax base the government is regularly introducing various compliances and statutory requirements on businesses and the most important tool to curb the tax evasion is TDS and TCS. These tools are reputed to be a powerful instrument for addressing the problem of tax evasion, as a tax administration mechanism. TDS and TCS are abbreviated as Tax Deducted at Source and Tax collected at source. The government uses TDS and TCS as a tool to collect tax in order to minimize tax evasion by taxing the income/receipts at the time it is generated rather than at a later date.
As seen in the past, every year the government is expanding the base of TDS and TCS by enlarging its scope. This year i.e. in Finance Act, 2020 the government has increased the scope of TDS on digital taxation front by introducing TDS on e-commerce operators with a purpose to widen and deepen the tax net by bringing participants of e-commerce within tax net. This newly inserted section casts an obligation for deduction of tax from the payment made by an e-commerce participant for the sale of goods or provision of services through a digital or electronic facility or platform facilitated by it. This provision was originally proposed to be introduced w.e.f. 01.04.2020 but later on this proposal has been deferred and will now be applicable w.e.f. 01.10.2020.
The concept of TDS and TCS is not limited to the Income Tax Act, 1961 but with the introduction of GST w.e.f. 01.07.2017 the provisions of TDS and TCS has also been found place under GST. The relevant provisions of TDS and TCS are contained in section 51 and 52 of CGST Act, 2017 which were scheduled to be effective w.e.f 01.07.2017 but due to technical glitches the same has been notified w.e.f. 01.10.2018 by notification no. 50/2018 Central Tax and 51/2018 Central Tax dated 13.09.2018. Section 52 deals with the provisions regarding collection of TCS by e-commerce operators.
As mentioned above, e-commerce operators have now to compile both the provisions i.e TDS under Income Tax Act, 1961 and TCS under Central Goods and Service Tax, 2017 w.e.f. 01.10.2020 on the same transaction.
Before Proceeding further we should be familiar with the some related terms of E-Commerce.
RELATED TERMS OF E-COMMERCE :
E-COMMERCE (ELECTRONIC COMMERCE) is the activity of electronically buying or selling of products through online services over the Internet.
However Electronic Commerce has been defined in the newly inserted section 194-O in the Income Tax Act as “electronic commerce is defined to mean the supply of goods or services or both, including digital products, over digital or electronic network” which is the same definition placed in section 2(44) of the CGST Act, 2017.
E-COMMERCE OPERATOR: On the same lines E-Commerce Operator has been defined in newly inserted Section 194-O of the Income Tax Act, 1961 which has been placed under section 2(45) of the CGST Act, 2017. It reads as under” E-Commerce Operator is defined to mean any person who owns, operates or manages digital or electronic facility or platform for electronic commerce.
However the above definition was originally proposed in the Finance Bill 2020 as ”E-Commerce Operator is defined to mean any person who owns, operates or manages digital or electronic facility or platform for electronic commerce and is a person responsible for paying to e-commerce participant. Since this section provides that any payment made by the purchaser of goods or recipient of services directly to the e-commerce participant, for the sale of goods or services facilitated by an e-commerce operator, shall be deemed as the amount paid or credited by the e-commerce operator. Whereas the section has defined e-commerce operator as the person responsible for payment to e-commerce participant. Thus, the provision deeming the payment made by the customer as payment made by an e-commerce operator. This interpretation is contradictory to the definition of e-commerce operator as an e-commerce operator is not actually making payment to e-commerce participant in such cases.
To remove this ambiguity, the Finance Act, 2020 has amended the definition of e-commerce operator to remove the condition which requires an e-commerce operator to make payment to e-commerce participant.
E-COMMERCE PARTICIPANT has been defined under Finance Act 2020. It states as “E-COMMERCE PARTICIPANT means a person resident in India selling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce.
EXTRACT OF LEVY PROVISIONS UNDER BOTH THE STATUES
| E-COMMERCE OPERATOR | TDS UNDER SECTION 194-O OF INCOME TAX ACT, 1961 | TCS UNDER SECTION 52 OF CGST ACT 2017 |
| LEVY | 194-O. (1) Notwithstanding anything to the contrary contained in any of the provisions of Part B of this Chapter, where sale of goods or provision of services of an e-commerce participant is facilitated by an e-commerce operator through its digital or electronic facility or platform (by whatever name called), such e-commerce operator shall, at the time of credit of amount of sale or services or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier, deduct income-tax at the rate of one per cent of the gross amount of such sales or services or both.
Explanation.––For the purposes of this sub-section, any payment made by a purchaser of goods or recipient of services directly to an e-commerce participant for the sale of goods or provision of services or both, facilitated by an e-commerce operator, shall be deemed to be the amount credited or paid by the e-commerce operator to the e-commerce participant and shall be included in the gross amount of such sale or services for the purpose of deduction of income-tax under this sub-section. |
Section 52 (1): Notwithstanding anything to the contrary contained in this Act, every electronic commerce operator (hereafter in this section referred to as the “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.
Explanation.––For the purposes of this sub-section, the expression “net value of taxable supplies” shall mean the aggregate value of taxable supplies of goods or services or both, other than services notified under sub-section (5) of section 9, made during any month by all registered persons through the operator reduced by the aggregate value of taxable supplies returned to the suppliers during the said month |
Let’s understand the levy with the help of an example.
Suppose XYZ, a partnership firm selling its product ‘A’ at Flipkart, who is an e-commerce operator. Details of transactions for the month of October 2020 are as under:
| Particulars | Amount in Rs. | Amount in Rs. |
| Supplied Goods for the month (Taxable Value) (A) | 10,00,000 | |
| Add: GST @ 18% (assumed) (B) | 1,80,000 | |
| Invoice Value of goods supplied C= A+B | 11,80,000 | |
| Supplies Returned during the month (Debit Note Value)(D) | 3,00,000 | |
| Add: GST @ 18% (assumed)(E) | 54,000 | |
| Taxable Value of Debit Notes F=C+D | 3,54,000 | |
| Gross Amount Payable by Flipkart to XYZ = G=C-F | 8,26,000 | |
| Commission and Other Charges of Flipkart inclusive of GST @ 18% = (H) | 2,36,000 | |
| Net Amount Payable = I=G-H | 5,90,000 |
Now as per newly inserted section 194-O, Flipkart has to deduct 1% as TDS on gross amount of sales at the time of credit of account of E-commerce Participant (Assumed no advance payment has been given) and on the other hand It has to collect tax at source under section 52 of CGST/SGST ACT 2017, on the net value of taxable supplies @ 0.50% each as CGST/SGST in case of intra-state and 1% as IGST in case of inter-state as recommended by the GST Council and notified by way of notification no. 52/2018-Central Tax and 02/2018-Integrated Tax.
Regarding TCS under GST there is no confusion about its calculation. Since it has to be calculated on the net value of taxable supplies and in this case the net value of taxable supplies is 7,00,000 i.e (Goods Supplied during the month 10,00,000- Goods returned during the month 3,00,000). So on Rs. 7,00,000/- 1% GST comes out to Rs. 7,000 which has to collected by e-commerce operator i.e. Flipkart in this case. So the net payment to participant will be reduced by Rs. 7000.
However regarding calculation of TDS it has been specified that TDS has to be deducted on gross amount of sales. In the absence of defining the term gross amount of sale and as compared with GST provisions where the TCS has been collected on net value of taxable supplies then it can be interpreted that the TDS has been deducted on the gross value of sales i.e Rs. 10,00,000 in this case which comes out to Rs. 10000 (i.e. 1% on Rs. 10,00,000.) But the question here is still unresolved. Why? Because What about GST component on gross value of taxable supplies which in this case is Rs. 1,80,000. Whether TDS has to be deducted on Rs. 1,80,000 or not?
Regarding GST on Services the CBDT has clarified by way of circular no. 23/2017 dated 19th July 2017 issued in modification of circular no. 1/2014 dated 13.01.2014 after introduction of GST which states that if GST on Services component has been indicated separately in the invoice, then no tax would be deducted at source under Chapter XVII-B of Income Tax Act, 1961 on such GST component. But here is the case of goods and not of services. And circular doesn’t talk about GST on Goods, it talks only about GST on Services. So TDS should be deducted @ 1% on Rs. 11,80,000/- i.e Rs. 11,800 and net amount payable to e-commerce participant should be further reduced by Rs. 11,800.
So as per the opinion of the author if e-commerce operator facilitates sales of goods of e-commerce participant then TDS has to be deducted on GST component and if e-commerce operator facilitates sales of services of e-commerce participant then no TDS should be deducted on GST component until any clarification will come or circular will again modified to include GST on goods as well.
EXEMPTION FROM LEVY PROVISIONS UNDER BOTH THE STATUES
| E-COMMERCE OPERATOR | TDS UNDER SECTION 194-O OF INCOME TAX ACT, 1961 | TCS UNDER SECTION 52 OF CGST ACT 2017 |
| EXEMPTION | (2) No deduction under sub-section (1) shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of an e-commerce participant, being an individual or Hindu undivided family, where the gross amount of such sale or services or both during the previous year does not exceed five lakh rupees and such e-commerce participant has furnished his Permanent Account Number or Aadhaar number to the e-commerce operator.
(3) Notwithstanding anything contained in Part B of this Chapter, a transaction in respect of which tax has been deducted by the e-commerce operator under sub-section (1), or which is not liable to deduction under sub-section (2), shall not be liable to tax deduction at source under any other provision of this Chapter: Provided that the provisions of this sub-section shall not apply to any amount or aggregate of amounts received or receivable by an e-commerce operator for hosting advertisements or providing any other services which are not in connection with the sale or services referred to in sub-section (1). |
Section 52 (1): Notwithstanding anything to the contrary contained in this Act, every electronic commerce operator (hereafter in this section referred to as the “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 |
Under newly inserted provisions of Section 194-O of Income Tax Act, 1961 Sub Section (2) provides exemption from TDS for small e-commerce participants which means the participants whose gross amount of such sale or services or both during the previous year does not exceed five lakh rupees but this exemption can be effective only if such participant shall furnish his Permanent Account Number/Aadhar Number to e-commerce operator. Since GST Number is based on Permanent Account Number and the supplier making supplies that are liable to TCS is cumpulsory liable to be registered under section 24(ix) of CGST Act, 2017, so the submission of Permanent Account Number will not be any problem for small e-commerce participant.
Sub Section (3) provides that if any TDS has been deducted under this transaction no TDS will be deducted under any other provision of this Chapter but this sub-section shall not apply if e-commerce operator received any money towards hosting of advertisement or providing any other services to e-commerce participant which are not in connection with the sale or services of their products. The main purpose of giving this exemption is to not contradict the newly inserted general provisions of TCS on sale of goods under section 206C(1H) of the Finance Act, 2020.
In TCS provisions of GST there is not any specific section for exemption but the TCS has to be collected on the net value of taxable supplies. So if there will be no TCS if goods or services are exempt.
IMPLICATIONS:
Besides being the motive behind insertion of new section is to bring e-commerce participant within the tax net and there will be transparency on the income earned by seller of goods/provider of service through digital platforms, there are some implications also which will arise in near future.
First one will be that there will be additional blockage of working capital of e-commerce participant because In today’s scenario the TDS deducted by E-commerce participants (except Individuals or HUF’s who are not liable to deduct TDS as per the provisions of Section 194C, 194H etc.) on account of commission and other charges of E-commerce operators recovered to E-commerce Participants only after the production of TDS certificates which are generated after the end of the quarter. So E-commerce participants are already facing the working capital blockage for more than a quarter and after 01.10.2020 the level of blockage of funds will raise as mentioned in the example. And that too will be available to the e-commerce participant only after the filing of return of Income Tax i.e. after the end of financial year and up to the date of processing of return. So it takes approximately more than a year to claim the TDS. However TDS under GST has been available to the participant on monthly basis under the provision of GST by crediting the cash ledger after acceptance of TCS.
Second big implication will arise on account of different amounts on which TDS has been deducted under Income Tax and TCS has been collected under GST. As discussed above TDS under Income Tax has been deducted on gross value of sales and even on GST component in case of goods but TCS has been collected on net value of taxable supplies. As we have seen in the past that the data has been shared by both the departments i.e. CBDT and CBIC and they have sent notices on account of mismatch of figures reported in Form 26AS as well as in ST-3 returns. Since the GST number is also PAN based and this data will also be shared and as stated above TDS under Income Tax and TCS under GST is on different amounts on the same transaction and mismatch notices will definitely come.
SUGGESTION:
Post discussion the author is of the opinion that this mismatch situation can be avoided if suitable clarification regarding gross amount of sales has been defined and the circular will also further amended in consonance of GST on services to include GST on goods also.
Author Bio
Dear Sir,
Thanks a Lot. Your explanations and example was really help full.
Regards,
Anish