GST: E-commerce firms to collect 1% tax at source from October 1

The Finance Ministry on Thursday notified that e-commerce operators shall collect an amount at the rate of one per cent as tax collected at source (TCS) under the Goods and Services Tax (GST) on the supplies made by them. Of the amount collected, half will go to the Centre and half to the State where the supply takes place.

TCS along with TDS (Tax Deducted at Source) are two mechanisms to levy taxes on income. There is basic difference between the two. While under TCS, the payment receiver collects additional money at a certain rate over and above the value of supply or purchase and deposits it with the government, under TDS the person making payment deducts certain percentage of total value paid and deposits it with the government. After the introduction of GST, the government proposed TCS for e-commerce companies and based on the recommendation of the Goods and Services Tax Council, it was decided that TCS will be levied from October 1. Any e-commerce operator supplying goods on behalf of any producer, is responsible to collect TCS.

Abhisehk Jain, Tax Partner at EY, said, “As the law had provided a levy up to one per cent, the e-commerce industry was awaiting the release of exact rate of TCS —essentially to configure it into their system.”

Under the new system, the marketplace model would typically be covered where goods/ services are supplied through the portal/app and payment is collected by the e-commerce operator (even if it is partial payment). Where supply is made under cash on delivery (COD) and such payment is collected on behalf of supplier, no TCS should apply. However, where payment is collected by a third party, under an arrangement with the e-commerce operator for payment to the supplier, the e-commerce operator becomes liable to collect TCS. However, there is no clarity in cases where there are 2 e-commerce operators involved (one which contracts with the supplier and second which contracts with the customer).

As the law says every e-commerce operator, either resident or non-resident, needs to get registered in each and every State, it has created a problem in compliance. “The law does not differentiate between resident and non-resident, both will have to get registered,” a senior Finance Ministry official clarified but he also added that some issues have been raised. “Now, the Law Committee under GST Council is considering this matter and soon the position will be clear,” he said.

Experts feel that the Tax Department should come up with a solution on registration issue as the present structure appears to be challenging for foreign e-commerce players.

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