TAX COLLECTED AT SOURCE UNDER GST

 A]. INTRODUCTION

  1. After introduction of the GST Act it was found that many suppliers were flouting law by not paying their share of taxes. This consequently led to failure of the GST Act implementation. Often criticized GST Act was getting targeted again because of the non-compliance of the law. It was seen that some suppliers were not filing returns even though they have not opted for composition scheme or were not below threshold limit. By not filing their return these suppliers were escaping their liability of GST as well as Income Tax.

 

  1. To curb the menace of flouting law, the Govt. on the recommendation of the GST Council introduced the concept of the Tax Collected at source (TCS). It is important to observe here that the concept of TCS is only applicable on the E-commerce operators but does not include agents in its operation. Starting 1st October 2018, every e-commerce operator has to collect TCS barring a few exceptions.


 

[B]. DEFINITIONS:


  1. 2 of the GST Act electronic commerce operator is defined under GST laws in the following terms:-

(44) “Electronic Commerce” Means The Supply Of Goods Or Services Or Both, Including Digital Products Over Digital Or Electronic Network;

(45) “Electronic Commerce Operator” Means Any Person Who Owns, Operates Or Manages Digital Or Electronic Facility Or Platform For Electronic Commerce;

  1. It can be seen that the definition of the electronic commerce operator is restricted to only persons who owns, operates and manages digital or electronic facility or platform for electronic commerce. This definition includes both category of operator i.e. one who operates, manages and sell its own product e.g. Samsung, Apple etc. and also the one who is only managing and operating the website and selling products of different supplier. There is no distinction between the operator who is selling his own product and an operator who is selling products of others as per GST Law for the purpose of TCS.

[B]. WORKING OF E-COMMERCE PLATFORM:

  1. The E-commerce platform provide for a platform for small sellers to sell their product to people at large. This has enlarged the reach of the sellers to even to remotest part of the India. In E-commerce business there is portal on which various products from various suppliers is listed. Any buyer interested in buying any product from the E-commerce portal will go through the website and will place an order as per his will. The product selected is actually manufactured by the third party or by the company itself. Payment is collected by the E-commerce service provider and the same is remitted to the third party who is the actual manufacturer of the product. So, here the E-Commerce portal facilitating as a listing portal only.

[C]. WHY TCS IS INTRODUCED ONLY FOR E-COMMERCE PLATFORM: 

  1. The E-commerce business has taken by a boom in the recent decade all over the world. The magnitude of commerce and facilities available through this E-commerce website is unimaginable. There are thousands and thousands of small suppliers working behind such E-commerce giants. The colossal like Flipkart, Amazon, Myntra etc. has provided a platform to thousand small and medium suppliers to reach out to every part of India.

 

  1. The step taken by the Govt. is in the furtherance of their untiring job of making the companies in compliance with the GST law. It is easier to keep a track on a big supplier then on thousand suppliers. These e-commerce operators are trade colossal who are easily traceable and it is easy to impose responsibility on them then to thousand small traders. So, the Govt. made an arrangement in the name of TCS whereby the responsibility is casted upon the E-commerce operator to deduct tax. By this methodology the Govt. will be in a better position to keep a check on the defaulting sellers who were flouting the law by not filing the return.

 

  1. The sole reason that can be apparently seen from the TCS concept is to bring bigger base under the tax regime. If E-commerce operator is deducting 1% TCS of every transaction then the Govt. will have the data and information that the certain supplier has made a transaction and now that certain supplier cannot escape its own responsibility of tax payment.

 [D]. REGISTRATION:

  1. 24 of the Goods and Service Tax Act provides for compulsorily registration. This section starts with a non-obstante clause and states that “notwithstanding anything contained in sub-section (1) of section 22, the following categories of persons shall be required to be registered under this Act”. Sec 24 sub-section (x) states that every electronic commerce operator meaning thereby that every commerce operator has to compulsorily get registered under the Act irrespective of their turnover.

 

  1. Application for Registration for TCS collector is to be filed in REG-07. Registration certificate to be issued in REG-06. If a proper officer is satisfied that a person is no longer liable to deduct tax, he may cancel registration in REG-08.

[E]. POWER TO COLLECT TAX:

  1. Sec 52 of the GST Act provides for the collection of tax at source by the Electronic commerce operator. The amount or rate of Tax Collected at source shall not be more than 1% of the net value of taxable supply.

[F]. RATE OF TCS UNDER GST:

  1. Under the GST regime, every electronic commerce operator, not being an agent, shall collect an amount calculated @ 0.5% of the net value of intra-State taxable supplies made through it by other suppliers where the consideration with respect to such supplies is to be collected by the said operator.

Note: – Sec.20 Of The IGST Act Provides That In Case Of Tax Collection At Source, The Operator Shall Collect Tax At Such Rate Not Exceeding 2% As May Be Notified On The Recommendations Of The Council Of The Net Value Of Taxable Supplies. But At Present This Rate Has Been Notified @ 1%.

Eg: – Suppose A Product Is Sold At Rs.1000/- Through An ECO By A Supplier. The Operator Would Collect Tax @1% Of The Net Value Of Rs.1000/- I.E. Rs.10/- (Inter State Supply).

 

[G]. DEPOSIT OF TCS:

  1. The specified date for depositing or remitting to TCS collected to the Govt. exchequer is within 10 days from the closing of the month in which tax collected at source is deducted. This monthly return is to be filed along with details containing sales transaction on which TCS is collected in Form GSTR-8.

 

  1. Every E-commerce operator shall file GSTR 9B, an annual return. This annual return needs to be filed by 31st of December following the end of every financial year whereby the E-commerce operator is required to provide reconciliation between financial accounting results and GST Returns.

 

  1. On the other hand, the vendors/ suppliers must file 3 monthly returns. It is only when these returns are duly filed that the suppliers can claim credit of the tax collected.

 

[H]. IMPACT:

 

  1. The TCS concept is not applicable to Indian Companies only but also to any foreign companies which are working in India. The rationale behind the idea is pristinely clear. The concept of the tax collected at source is more of an administrative move than to a legal move. It is easier for the Govt. admin to keep a track of a mammoth then keeping track of small industries and sellers. Putting liability on the mammoth is easier and in this process Govt. will curb the menace of escaping of tax liability by various suppliers.

 

  1. On the other hand the compliance of the E-commerce operator will rise significantly. TCS will put another grunt on the already overloaded operator to comply with another set of the compliance checklist. The compliance cost will be added whereby the company needs to have a IT structure which can deduct tax @1% on every transaction.

 

 

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