TCS provision in GST for the E-commerce industry

Impact of GST on Online Retail Sector

The way the E-commerce sector is growing in the Indian economy is being seen as a plum pie by the taxation authorities. According to the studies available, the E-commerce revenue is likely to jump fourfold from the current US$ 30 billion to US$ 120 billion by the year 2020. The Indian E-commerce industry is unique because of the high number of transactions, complex nature and the kind of employment it generates for the unorganised sector. Being the sunrise sector of the Indian economy, the E-commerce industry continues to evolve. You can easily see the multiple types of formats for transactions that have emerged in the recent past. The simple formats like Marketplace model, Inventory model and Sales model have been supplemented by the Fulfilment model, Hybrid model and the Managed marketplace model.

Numerous attempts have been made by the State governments to tax the E-commerce sector by classifying them under sales of goods and charging them with VAT. Even interstate movement of goods has been targeted with a view of earning revenue through Octroi and CST. In certain cases, the E-commerce has come under the purview of being a service provider and made liable for payment of Service Tax. However, the taxations have not been justified properly and have gone into litigations. This has happened because of lack of clear-cut guidelines for the taxation of the E-commerce sector.

With the GST emerging as a major taxation reform for the Indian economy, the government is trying to include guidelines without harming the growth-oriented E-commerce industry. The TCS (Tax Collection at Source) is such an attempt, which is meant to collect the information of the suppliers in the E-commerce industry while slowly bringing them under the tax net. The draft GST law has indicated that the E-commerce industry deducts a payment of 2 per cent as tax, on the payment that it makes to the suppliers for the goods supplied. It is required to be deposited with the tax authorities by the 10th of the subsequent month in which it is collected. The detail of the CGST, SGST and IGST would also have to be provided in the electronic statement accompanying the tax deposit online.

Resistance to move was expected but at the same time, the industry participants feel that it is doable. Some of them cited that it will push the transactions to go offline rather than stay online. They expect a pressure on the working capital as this money would get locked in the system for a period ranging up to 40 days. The GST council was to take up the passage of the IGST and SGST bills on the 18th of Feb but now it will be taken up at the next meeting to be held on the 4th and 5th of March 2017. The current meeting was limited to the approval of draft compensation bill for states.

The TCS provision for the E-commerce sector would become a part of GST once the Parliament approves the various draft proposals by the GST council in its next session beginning the 9th of March 2017.

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