TCS under GST: E-commerce cos seek relief on 'fundamental issues', level playing field with offline players

E-tailers are seeking more relief on certain ‘fundamental issues’ even as the government has implemented the tax collection at source (TCS) regime under GST for merchants selling on e-commerce sites, while addressing their concerns through a pointed list of frequently asked questions (FAQs).

"While the government has addressed the procedural concerns, it hasn't addressed the fundamental issues," said a senior executive of one of the e-commerce companies requesting anonymity.

"The government has said that all small and micro enterprises need to be registered with the GST (Goods and Services Tax) authorities and undertake all the compliance. The seller needs to get the TCS deducted by the online e-commerce operators. If the threshold is below what is mandated by the GST, he needs to seek a refund from the GST authorities against the next return he is filing. The basic premise is why should he (supplier) take all the obligations? Is the offline retailer supposed to take all those obligations?" the person asked.

Stressing upon the need for a level playing field between online and offline operators, another company executive said: "While a supplier having turnover less than Rs 20 lakh needs to get a registration for transacting online it is not the case in offline."

TCS finally came into effect from October 1 after being deferred at least three times in the last one year. It mandates sellers of e-commerce companies to register themselves even if they are doing businesses below Rs 20 lakh annually. Businesses necessarily have to register under the new indirect tax regime, if their annual turnover is more than Rs 20 lakh.

The sellers will now have to pay 1 percent TCS on the goods sold to customers, as per the Section 52 of the Central GST (CGST) Act, 2017.

The levy, even though unlikely to yield a large amount in taxes, will still incrementally help the government move closer towards the monthly GST tax collection target of  roughly Rs 1 lakh crore, improve compliance and prevent tax evasion. The suppliers, however, can claim credit for the tax deducted.

In the FAQs, the government has clarified that every merchant supplying goods through an e-commerce operator shall be mandatorily required to register irrespective of the value of supply made by him.

The TCS has to be collected once supply has been made through the e-commerce operator.

In its FAQ list, released last week, the government has also clarified that TCS will not be collected on import of goods and services.

"As far as import of goods is concerned since same would fall fall within the domain of Customs Act 1962, it would be outside the purview of TCS," it said.

However, for companies providing services and not goods, it is not mandatory to register unless their aggregate turnover exceeds Rs 20 lakh.

On its part, the government may extend the first month’s return filing date to ease online marketplaces’ transition to the new system, depending on the implementation and feedback from the industry.

Under the GST norms, companies are required to file returns by the following month’s 10th day. In this case, since TCS will be applicable from October 1, e-tailers would have had to file their first set of returns by November 10.

A few e-commerce companies are also looking at avenues for engaging with the government again to discuss the the ramification of this action.

As mentioned in the FAQs, whenever the value of returned product is more than the supplies made during given time period, transaction value is being asked to be waived off/ignored.

This is not practical, since in e-commerce sector such scenarios are an integral part, a business norm and many times such return shipments are required to be booked in subsequent months.

“Average Industry norm for such “sales returns” is 20-25 percent of shipped gross merchadise value (GMV). This will definitely create unjustified hardship and will cause massive reconciliation complexities. When the transaction is reversed, the TCS also has to follow the same path,” another industry player said.