TCS applicability (GST) | Electronic Commerce Operator

[Narendra Nimmala]

Stakeholders new to the e-commerce are often perplexed by the complexities of indirect taxation in the industry. In this article, rather a detailed process note, the intricacies around the applicability of TCS (only GST) and the related compliance, are discussed.

1. Applicability of TCS

• Section 52 of the CGST Act is the principal section containing the provisions for Collection of tax at source (‘TCS’), under the GST Law. Section 52 casts obligations on an e-commerce operator (‘ECO’) to collect tax at source, in respect of taxable supplies made through it by the suppliers, where the consideration with respect to such supplies is to be collected by ECO.
• In summary TCS needs to be collected and remitted by ECO to Government, on:
  • Taxable supplies made through the e-commerce platform, and
  • Consideration is to be collected by the ECO, on behalf of the supplier, from the recipient

The important aspect to be noted is that, collection of consideration by an ECO is mandatory, for attracting TCS liability. In case, such consideration is not collected by ECO, TCS liability may not apply.

• This brings us to an important question, who is an ECO?

Section 2(45) of the CGST Act defines E-commerce Operator to “mean any person who owns, operates or manages digital or electronic facility or platform for electronic commerce”. Further, section 2(44) of the CGST Act defines electronic commerce “to mean supply of goods or services or both, including digital products over digital or electronic network”.

In short, ECO is a person who either owns, operates or manages a digital or electronic facility or platform for supply of goods or services or both, over such electronic network itself.

Eg: Amazon, Flipkart, Swiggy, Uber, etc

2. Registration requirements by a person required to remit TCS

1. Regular GST registration

• The Regular GST registration and the TCS registration are not inter-linked ie, an ECO has to obtain both normal registration as well as TCS registration separately.
• Regular GST registration needs to be obtained by ECO in every state from where taxable supplies are made, on breaching the threshold limit (calculated on PAN basis, i.e., turnover from all states) as specified in Section 22 of the CGST Act, 2017. Further, Section 24 of the CGST Act requires compulsory GST registration for the list of persons specified therein, without any threshold limit.
• The regular compliances of filing GSTR 1 and GSTR 3B would continue for the regular GST registrations, on outward supplies made, in addition to the TCS compliances as detailed in ensuing paras.

Eg: Any income of ECO, such as, commission charged by ECO from suppliers on the website, are to be disclosed in GSTR 1 and 3B of regular GST registration.

2. TCS registration

• In addition to the regular registration, section 24 mandates compulsory registration for every ECO, who is liable to collect tax at source, is required to obtain a GST registration (TCS registration), without any threshold limit.
• Further, TCS registration needs to be obtained in every state where the sellers are located. The same has been clarified vide Question No. 8 of the FAQs on TCS dated November 30, 2018.
• However, the ECO does not require a place of business/establishment in every state where the sellers are located. The TCS registration could be obtained in such states, basis the place of business of Head office.
• TCS needs to be deducted and paid to Government by 10^th of the subsequent month, by filing a monthly Statement in FORM GSTR-08.  
• ECO is required to collect and deposit the TCS in the State where the concerned supplier is located.
• In case any ECO, who is liable to be registered, fails to obtain such registration, then he shall be liable to penalty, under section 122(1) of the CGST Act, 2017, of ₹ 10,000 or the amount of TCS involved, whichever is higher, in addition to payment of tax payable and the applicable interest thereon.

3. GST Registration for Sellers on ECO (Registration by seller and not ECO)

• An ECO is liable to collect tax at source on supplies made through it by registered suppliers. Registration of the suppliers is a pre-requisite for on-boarding sellers on to the platform and for compliance with TCS requirements by ECO.
• To elaborate, section 24 of CGST Act provides for compulsory registration. As per the provisions of Section 24(ix), persons who supply goods or services or both through ECO liable to collect at source are required to obtain registration, without any threshold exemption.
• However, Section 23 of CGST Act read with Notification No. 65/2017-Central Tax, dated November 15, 2017 provides exemption to supplier of services, even if engaged in supplies of services through an e-commerce platform, with aggregate turnover upto ₹ 20 lakhs, from compulsory registration.
• Further, as per the provisions of Section 10(2) of the CGST Act, 2017, persons engaged in supply of goods or services or both through an ECO who is required to collect tax at source shall not be eligible to opt for payment of tax under the composition scheme.
• Any ECO, at the time of on-boarding of sellers, should ensure that all the sellers except for suppliers of exempted supplies and suppliers of services with aggregate turnover upto ₹ 20 lakhs, should be registered under the GST Law and are not paying tax under the composition scheme.

3. Collection of Tax at source

1. Rate of TCS

• As per Notification No. 52/2018 - Central Tax and 02/2018 - Integrated Tax both dated 20.09.2018, TCS is to be collected and remitted at the rate of:
  • 1.00% IGST, in case of inter-state supply by supplier, and
  • 0.50% CGST and 0.50% SGST or 0.50% UTGST, as the case may be, in case of intra-state supply by supplier.
• The rate at which TCS shall be collected a flat rate and is independent of the GST rate applicable on the supplies being made.

2. Time of Supply for deduction

• Liability for collection of tax at source on a supply would accrue in the month in which the tax invoice is issued by the supplier for such supply irrespective of whether or not consideration is collected in the same month when the supply is undertaken. The same has been clarified vide Question No. 14 of the FAQs on TCS dated November 30, 2018.

Example: If the supply is undertaken in the month of May 2021, for which the consideration is paid by the customer to ECO in the month of June 2021. The liability to pay TCS arises in the month of May 2021

3. Value/Consideration on which TCS needs to be paid

• As per the provisions of Section 52(1) of the CGST Act, 2017 along with the explanation thereto, the amount of tax to be collected and payable would be calculated on the net value of taxable supplies (invoices minus credit notes), supplier-wise, i.e., net value of taxable supplies would be computed for each supplier separately, as specified below:

Net value of taxable supplies

=

Aggregate value of taxable supplies made by the supplier during the month (invoices) - Aggregate value of taxable supplies returned to the said supplier during the said month (credit notes)

• If for any supplier, during a tax period, the aggregate value of taxable supplies returned exceeds the aggregate value of taxable supplies made, resulting in a negative net value of taxable supplies, then such excess/ negative amount shall be ignored and no tax would be collected at source. Further, such negative amount shall not be allowed to be carried forward for adjustment in future tax periods.
• Thus, the amount of TCS to be collected and paid shall be calculated at the flat rate of 1.00% of the net value of taxable supplies, not on the total GST amount applicable on such supplies, as specified below:

TCS Amount

=

1.00% * Net Value of Taxable Supplies

4. Exemption from TCS

• TCS would not be applicable on the following transactions -
  • Supply of exempted goods or services or both, including supply which attracts nil rate of tax and non-taxable supply,
  • Transactions which shall be treated neither as a supply of goods nor a supply of services, as specified by Schedule III,
  • Supply where the consideration is to be collected by the supplier from the recipient directly,
  • Supply made by the ECO on its own account,
  • Import of goods and Import of services, or
  • Supplies where recipient is required to pay tax on reverse charge basis.

5. Consequences of non-compliance with TCS

• In case an ECO –
  • fails to collect to tax at source, or
  • collects an amount which is less than the amount required to be collected, or
  • where he fails to pay to the government the amount collected as tax,

then ECO shall be liable to penalty under section 122(1)(vi) of the Act of ₹ 10,000 or the amount of TCS involved, whichever is higher. Further, the ECO shall also be liable to pay interest for the delay in payment of tax to be collected at source.

6. Illustrations for TCS payments:

The details of parties involved in the illustrations has been provided below

• • Z Ltd – ECO
  • A Ltd – Registered supplier located in Delhi making supplies through Z Ltd
  • B Ltd – Customer located in Haryana receiving supplies from A Ltd through Z Ltd
  • C Ltd – Customer located in Delhi receiving supplies from A Ltd through Z Ltd
  • D Ltd – Registered supplier located in Delhi making supplies through Z Ltd
  • E Ltd – Customer located in Haryana receiving supplies from A Ltd through Z Ltd

Below is an illustration containing the details of supplies undertaken by A Ltd, a seller located in Delhi, to its customers through Z Ltd, an ECO, in the month of July 2020.

Date	Transaction	Details	Total Amount (in Rs)
1st July, 2020	Sale of goods by A Ltd, Delhi to B Ltd, Haryana	₹ 1,25,000 + 18% IGST	1,47,500
6th July, 2020	Sale of goods by A Ltd, Delhi to C Ltd, Delhi	₹ 2,00,000 + 6% CGST + 6% SGST	2,24,000
11th July, 2020	Return of goods sold on 1st July, 2020 by B Ltd to A Ltd	₹ 25,000 + 18% IGST	29,500
16th July, 2020	Return of goods sold on 6th July, 2020 by C Ltd to A Ltd	₹ 50,000 + 6% CGST + 6% SGST	56,000
21st July, 2020	Partial Payment by B Ltd to Z Ltd	(₹ 1,47,500 - ₹ 29,500) * 50%	59,000
1st August, 2020	Payment by C Ltd to Z Ltd	₹ 2,24,000 - ₹ 56,000	1,68,000
1st August - 10th August, 2020	Collection and deposit of TCS applicable on net supplies made by Z Ltd during the month of July, 2020 Payments received from B and C would not affect TCS liabilities	IGST – (₹ 1,25,000 - ₹ 25,000)* 1.00% = ₹ 1,000 CGST - (₹ 2,00,000 - ₹ 50,000) * 0.50% = ₹ 750 SGST - (₹ 2,00,000 - ₹ 50,000) * 0.50% = ₹ 750	2,500

Following are the details of supplies undertaken by A Ltd, through Z Ltd, an ECO in the month of August 2020:

Date	Transaction	Details	Total Amount (in Rs)
1st August, 2020	Return of goods sold in July by B Ltd, Haryana to A Ltd, Delhi	₹ 1,00,000 + 18% IGST	1,18,000
6th August, 2020	Sale of goods by A Ltd, Delhi to B Ltd, Haryana	₹ 50,000 + 18% IGST	59,000
26th August, 2020	Sale of goods by D Ltd, Delhi to E Ltd, Haryana with payment	₹ 2,50,000 + 28%	3,20,000
1st September - 10th September, 2020	No TCS to be collected and paid by Z Ltd for supplies made by A Ltd, as net value of taxable supplies made by A Ltd during the month of August, 2020 is negative For supplies made by D Ltd, Z Ltd is liable to collect tax at source and no adjustment of negative value of supplies made by A Ltd can be made against supplies made by D Ltd Negative net value of taxable supplies made by A Ltd shall be ignored and details of supplies made by D Ltd and the TCS payable thereon shall be reported by Z Ltd in FORM GSTR-08 for the month of August, 2020	Supplies by A Ltd - Net Value of Taxable Supplies - (₹ 50,000 - ₹ 1,00,000) = - ₹ 50,000 (Negative) IGST TCS - 0 & 1.00% = ₹ 0 Supplies by D Ltd - Net Value of Taxable Supplies - ₹ 2,50,000 IGST TCS – ₹ 2,50,000 & 1.00% = ₹ 2,500	2,500

• Amount of tax collected at source by an ECO, during a month, has to be paid by such ECO to the Government within 10 days after the end of relevant month.
• The payment of TCS liability can be made through utilization of amount deposited in electronic cash ledger only, i.e. TCS liability cannot be remitted by utilization of the input tax credit.
• Amount of TCS payable would have to be deposited by the ECO in its electronic cash ledger. Thereafter, the amount deposited in electronic cash ledger would be utilized for payment of TCS liability while filing Statement in FORM GSTR-08.  
• In case an ECO deposits the amount of TCS under the wrong tax head or under the wrong minor head, interest, fee, etc., then Section 49 of the CGST Act, 2017 read with Rule 87(13) of the CGST Rules, 2017, the ECO can transfer such amount wrongly deposited to the correct head in the electronic cash ledger, by filing the form in FORM PMT-09.
• In case of excess deposit in the electronic cash ledger, resulting in unutilized balance in the electronic cash ledger, then the ECO can either carry forward the balance to next month or claim refund (clarified vide para 56 of Circular No.125/44/2019-GST dated November 18, 2019) of such excess balance in the monthly statement in FORM GSTR-08, after payment of the applicable TCS liability of the said month.

4. Reporting and Matching of TCS Liability

1. Reporting

• As per the provisions of Section 52(4), every ECO, liable to collect tax at source, is required to report the details of outward supplies effected through it, including the supplies returned through it, and the amount collected thereon, during a month, in a monthly statement, in FORM GSTR-08 electronically on the GST Portal, within 10 days after the end of such month.
• In case an ECO makes any delay in filing of statement in Form GSTR-08, resulting in delay in payment of TCS liability, then such ECO shall be liable to pay interest at rate of 18% per annum from due date of filing of the said statement till the actual date of filing.
• If any ECO after furnishing the monthly statement discovers that any details have been omitted or incorrect details have been provided, then as per the provisions of Section 52(6) of the CGST Act, 2017, such ECO is allowed to rectify such omission or incorrect details, by way of amendment in the monthly statement for the month in which such error was identified.
• In case such amendment results in an increase in the TCS liability of the ECO, then such differential TCS liability and the applicable interest thereon would have to be paid, along with the TCS liability for the month in which such amendment is made.
• However, above rectification/ amendment shall be allowed to be made before the due date for furnishing of statement for the month of September following the end of the relevant financial year or the actual date of furnishing of the relevant annual statement, whichever is earlier.
• As per the provisions of section 52(5) of the CGST Act, 2017, the ECO is also required to file an Annual Statement, in FORM GSTR-9B, containing the summary of details reported on monthly basis in FORM GSTR-08, by December 31^st of the subsequent financial year. However, it is to be noted that the provisions for filing of annual statement and the form in FORM GSTR-9B are yet to be notified.

2. Matching of details reported by the ECO and by the supplier (CURRENTLY NOT IMPLEMENTED)

• As per the provisions of Section 52, the place of supply and net taxable value of outward supplies made by the suppliers, through e-commerce platform, as reported by the ECO in statement in FORM GSTR-08 shall be compared with the corresponding details of outward supplies made through e-commerce platform, as reported by the concerned supplier in Statement of Outward supplies in FORM GSTR-1.
• The matching will take place on the due date for filing of statement of outward supplies by the supplier in FORM GSTR-1. If the due date for filing GSTR-1 is extended, then the date of matching will be extended accordingly. Thus, the matching for taxpayers filing GSTR-1 on monthly basis would take place after the 11^th day after the end of the relevant month. On the other hand, for taxpayers filing GSTR-1 on quarterly basis, the matching would take place on the last day of the month subsequent to the relevant quarter.
• In case of any discrepancy, the same shall be communicated, electronically on the GST portal, to the supplier in FORM GST MIS-3 and to the ECO in FORM GST MIS-4, on or before the last date of the month in which the matching has been carried out.
• In case the discrepancy is on account of error/ omission by the supplier, then the supplier shall make the appropriate amendment/ rectifications in the GSTR-1 to be filed for the month in which the discrepancy is made available. Alternatively, in case the discrepancy is on account of error/ omission by the ECO, then the ECO shall make the appropriate amendment/ rectifications in the GSTR-08 to be filed for the month in which the discrepancy is made available.
• In case where the discrepancy is not rectified by the supplier or by the ECO, as specified above, then in case the discrepancy results in an under-reporting by the supplier, of its taxable turnover and the output tax liability thereon, then the amount of discrepancy would be added to the taxable turnover of the supplier along with applicable GST and interest thereon.
• However, it is to be noted that the above matching provisions are yet to be implemented and the forms for communication in FORM GST MIS-03 and FORM GST MIS-04 are yet to be notified.

5. Claim of TCS amount by Suppliers

• As per the provisions of Section 52(7) of the CGST Act, 2017 read with Rule 87(9) of the CGST Rules, 2017, the TCS amount reported and paid by the ECO, in the monthly statement in FORM GSTR-08, shall be made available to the concerned suppliers, for acceptance or rejection.
• Upon filing of GSTR-08 of the relevant month by the ECO, the details of supplies and the amount of TCS Credit thereon shall be communicated immediately, on a real-time basis, to the respective suppliers in the Statement - TDS and TCS Credit Received in their Return Dashboard on the GST Portal (Services à Returns à TDS and TCS Credit received), of the said month.
• The supplier has to accept the details so auto-populated, for claim of amount of TCS paid by the ECO. In case of incorrect details, the supplier shall have an option to reject and such details would be made available to the ECO in the subsequent month for rectification. In case of omission of details by the ECO, the supplier cannot add the same and the ECO shall have to report the details omitted earlier.
• After accepting and/ or rejecting the TCS entries available, the supplier shall file the statement - TDS and TCS Credit Received. Upon filing of the said statement, accepted TCS amount will be added to the electronic cash ledger of the supplier and would be treated at par with the amount deposited by the supplier itself.
• The amount of TCS credit can be utilized by the supplier for payment of the output tax liability, including RCM liability, if any, under the respective heads only, in its return in FORM GSTR-3B.
• The excess balance in the electronic cash ledger of the supplier, after payment of tax payable of the current month, can be utilized for payment of tax in subsequent periods and shall not lapse. Further, if required, the supplier can make inter-head transfer of the amount available, by filing a form in FORM GST PMT-09 and make payment of its tax liability accordingly.
• For suppliers operating with wafer thin margins, the TCS credit may result in accumulation of taxes in electronic cash ledger.
• Section 49(6) read with Section 54 of the CGST Act, 2017, provide the sellers with an option to claim refund of the balance available in electronic cash ledger by filing a refund application in FORM GST RFD-01.

The document is only for academic purposes. For feedbacks or queries, please write to narendra@hiregange.com