TCS-TDS: The government of India has notified that the Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions under the good and services tax (GST) to be effective from October 1.
The execution of both TCS and TDS have been directed at a time when the government is lagging behind in terms of budget targets with authorities struggling to facilitate revenues at higher levels.
India has seen an enormous increase in the e-commerce industry which has launched it to the second position in the world in terms of market size. In spite of the immense growth, the sector has been still facing a lot of problems owing to the poor administration of policies like the relaxation of federal direct investment (FDI), implementation of an e-commerce tax, and the introduction of Goods and Services Tax (GST) still the e-commerce sector is facing a lot of problems.
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What is TCS & How does it Work?
The e-commerce marketplace has been witnessing an immense growth in terms of the number of sellers on various e-commerce platforms like Amazon, Flipkart, Paytm and Snapdeal etc. With most of the transactions being made in interstate sales, it has become almost impossible for the government to keep track of the taxes being paid and collected. To overcome this problem, the government has introduced TCS-TDS which will be applicable from October 1.
The GST, which includes a number of local taxes was rolled out from July 1, 2017. Although to make it easier for businesses in the initial months of introduction, TCS-TDS provision of GST laws was kept on hold till June 30. Later on, it was postponed till September 30, 2018.
As per TCS-TDS rule, notified entities are required to deduct up to 1% SGST and 1% CGST on intrastate supplies of products of up to Rs. 2.5 lakh, whereas in the case of interstate supplies of over 2.5 lakh 2% TDS will be deducted.
Also Read: New Update on GST for eCommerce Sellers.
For e-commerce platforms like Flipkart, Amazon etc., this will mean that tax deduction and deposit of 1% on every payment made to a seller whenever goods are sold. State and Centre also need to take effective measurements to ensure the deductors are registered with them.
Let us make it simple for you to understand how TCS-TDS work. Consider that A is an online seller who sells a product worth Rs. 1,000 through Amazon, then Amazon must collect Rs. 10 as the TCS-TDS and pay Rs. 990 to the vendor.
The main intention of the government behind introducing this act is to examine the businesses using e-commerce platforms for their sale. With a lot of transactions associated with the e-commerce sector, it was almost impossible to identify the flow of transactions taking place internally. TCS-TDS can be used by the government to tackle the problem (transactions) to a certain extent. Also, TCS-TDS will make it easier for the tax department to get the update about the products sold online by the suppliers using the web portals in a secured way.
What are the Impacts Of TCS-TDS?
- Interruption of Cash Flow: It will have a big impact on online sellers, as they are already getting fewer profit margins while selling goods.
- A strain for e-commerce operators: Platform updates will be needed to handle monthly TCS filings, as well as to address purchasers’ ITC claims. A penalty will be charged if they fail to submit TCS-TDS filings by given date.
- Concerning for vendors: If there’s a mismatch in the information provided by vendors & e-comm platform, the entire tax burden will fall on the seller, irrespective of the fault.
- Warehouse Check: Vendors may need to present the services or number of products they sell on the online platforms along with products stored in the warehouse.
The notification of the TCS-TDS provisions was long due since the enactment of the GST laws on 1 July 2017. The rationale behind having the TDS provisions is to help in monitoring the transactions with the Government which may involve substantial consideration and further to ensure GST compliance therein.
