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Tax Collected At Source ( TCS ) Under GST

What is TCS?

The Tax, the seller, collects from the buyer when they purchase a particular category of goods is TCS, or Tax Collected at Source.

The term “Tax Collected at Source” (TCS) in the context of GST refers to the Tax that an online marketplace operator collects from the payment it receives on behalf of a provider of goods or services who makes supplies through the marketplace operator’s online platform. 

The TCS rate varies according to the type of goods, and the seller must deposit the Tax they have collected from the customer with the government. In other words, TCS is a tax the seller must pay to the government and then collect from the purchaser or lessee.

TCS Under GST example:

M/s. XYZ Stores, a proprietorship, sells clothing on Amazon. Being an online retailer, Amazon will be required to subtract TCS from the payment made on behalf of XYZ before it is paid.

Who is responsible for getting TCS under GST?

TCS must be collected by certain operators who own, run, and oversee e-commerce platforms.

TCS only applies when operators collect money from customers on behalf of suppliers or vendors.

In other words, the e-commerce companies must subtract a certain amount as TCS before paying the vendors the consideration they have been paid.

Here are a few TCS provisions that do not apply to services rendered through an e-commerce platform:

  • Hotels and nightclubs (unregistered suppliers)
  • Using a motorcycle, motor cab, or radio taxi for passenger transportation
  • Plumbing, carpentry, and other housekeeping services (unregistered vendors)

Types of vendors under TCS

The following businesses and individuals are classified as sellers for TCS:

  • Legal Organisation or Authority
  • The Cooperative Society
  • Company Partnerships
  • Company
  • Local government
  • Federal Government
  • Central Administration
  • Any HUF or person whose total sales and/or gross receipts in the most recent financial year exceeded the monetary thresholds specified in Section 44AB.

Types of consumers at TCS

A buyer/consumer is a person who has the legal authority to purchase goods at any auction, tender, sale, or other transaction on behalf of a single or specific entity, person, or group of products.

The businesses and individuals that are not regarded as buyers for TCS or tax collected at source are as follows:-

  • Central Administration
  • Clubs such as social clubs and sports clubs
  • Consulate
  • High Commission Embassy
  • Governmental Organisations
  • Private Sector Organisations
  • Federal Government
  • Representation of Any Foreign Nation’s Trade Committee

TCS Rate of Goods

Product Types TCS Rate
Tendu leaves 5%
Alcoholic beverages consumed by people 1%
Timber harvested from leased forests 2.5 %
Quarrying, Toll Plaza, and Parking Lot 2%
Minerals such as coal, lignite, or iron ore  1%
The forest product that does not consist of forest timber or tendu leaves 2%
Scrap 1%
Old and new cars may be sold if the price exceeds Rs. 10 lakhs. 1%
Bullion if the price is over Rs. 2 lakhs, and jewellery if the price is over Rs. 5 lakhs (For any cash-paid invoice or receipt) 1%
Providing any service, excluding payments more than Rs. 2 lakhs on which TDS has already been taken 1%
Selling any goods for which the cash purchase price exceeds Rs. 2 Lakhs 1%

TCS under GST registration requirements

Any e-commerce operator responsible for collecting TCS (Tax Collected at Source) must register under GST (Goods and Services Tax). There is no threshold limit exemption for this. 

This also applies to sellers who supply goods through an online portal of an e-commerce player. They, too, are mandatorily required to get registered under GST, with a few exceptions.

Here are the requirements for registration:

  • Every e-commerce business that is obligated to collect TCS must register for GST.
  • All suppliers who engage in e-commerce, except those who make supplies, are subject to notification under section 9(5) of the CGST Act.

Note: The following services are listed in Section 9(5): 

  • Providing passenger transportation by radio-taxi and motorcycle 
  • Lodging in hotels and guesthouses for residential 
  • Lodging purposes (unregistered suppliers) 
  • Housekeeping services, such as plumber and carpenter work, etc. ( unregistered suppliers).
  • Service providers who offer goods or services through an online marketplace are not required to register if their combined annual revenue is less than Rs. 20 lakh or Rs. 40 lakh (assuming they do not make inter-state supplies).
  • Manufacturers who offer their products on an e-commerce platform are not exempt from registration.
  • An e-commerce company that supplies goods or services to customers in multiple states must register for GST in each state.

What form should I use to submit TCS returns?

E-Commerce owners must submit GSTR-8 by the 10th of the month following the month in which the tax was collected.

This return won’t be submitted until the tax revenue has been paid to the appropriate governmental account.

For instance, GSTR-8 is due on January 10, 2022, for December 2021.

Methods for calculating the taxable value of supply for TCS

The “Net Value Of Taxable Supplies” will be the basis for tax collection. 

This net taxable amount will be determined as follows:

The total cost of taxable goods and/or services supplied (other than notified services under GST law by all registered persons) – Taxable goods that the e-commerce operator has returned to the suppliers = the net worth of those taxable goods.

Here’s an illustration to help you better understand:

A registered supplier, M/s. ABC Ltd is providing items via an online retailer.

In September 2018, it produced supplies worth Rs. 55,000,000. For September 2018, ABC Ltd. received items valued at Rs. 5,00,000.

In this case, the e-commerce operator will deduct TCS at 1%, or Rs. 50,000, from the net value of the taxable supply for TCS collection, which is Rs. Therefore, Rs. 49,50,000 is the total amount due to the provider.

TCS Due Dates for the Financial Year 2023–2024

Duration Quarter Due date for filing
From April 1 to June 30 1st Quarter 31st July 2023, Extended Till 30th Sept (Only for 26Q and 27Q)
From July 1 to September 30 2nd Quarter 31st October 2023
Between October 1 and December 31 3rd Quarter 31st January 2024
Between January 1 and March 31 4th Quarter 31st May 2024

The TCS provisions’ impact

Before October 1, 2018, the deadline for implementing TCS requirements, e-commerce operators must register under GST in each state where they conduct business.

The ERP systems must be well connected for these provisions to be effectively implemented in day-to-day business operations.

Additionally, the suppliers who sell to e-commerce operators will have their working capital restricted until they file their returns and claim for the overpaid taxes. This may make it impossible for SME suppliers to offer their products or services through the website.

Since the tax will be collected at every transaction, tax evasion will be considerably reduced from the government’s perspective.

FAQs on TCS under GST

Is a PAN card necessary for TCS under GST?

Every taxpayer must provide their PAN to the TCS collector, per a requirement from the Income Tax Department.

In the absence of a PAN, what is the TCS rate?

The TCS rate is 10% in the absence of PAN or Aadhaar.

Who is eligible for TCS under GST?

Every person who supplies goods or services through an e-commerce operator must register under the Goods and Services Tax (GST) unless they make supplies specifically notified under section 9 (5) of the CGST Act.

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