How will TCS affect e-Commerce Industry in India? | H&R Block | Blog
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How will TCS affect e-Commerce Industry in India?

India has witnessed an immense boom in the e-commerce sector which has catapulted it to the second position in terms of market size in the world. Despite the tremendous speed of growth, the industry has been facing certain challenges due to poor implementation of policies like the relaxation of federal direct investment (FDI) policies, implementation of an e-commerce tax, and the introduction of Goods and Services Tax (GST), certain major problems still affect the sector. A big issue is the evasion of taxes by online B2C sellers on whom Input Tax Credits (ITC) are not applicable.

With the mammoth number of sellers on every e-commerce platform (Snapdeal has close to 5 lakh) and with most transactions being interstate sales, it is very difficult for the government to keep track of the tax collected and paid. The solution? Tax Collected at Source (TCS), introduced in November 2016 as Section 56 of the draft Model GST Law (MGL).

Concept of TCS

TCS will affect electronic commerce and electronic commerce operators. It is defined under Model GST Law as follows:

  • Electronic commerce: sales of goods and/or services, including digital products over a digital or electronic network.
  • Electronic commerce operator:any person who owns, operates, or manages a digital or electronic facility or platform for electronic commerce.

As per Section 56, every electronic commerce operator must collect (i.e. deduct) tax at source @ 1% on the net taxable value of a vendor’s sale before making payment to that vendor. To understand this, let’s take the example of online marketplace Amazon. If a vendor sells his product which is worth Rs. 2,000 through Amazon, then Amazon needs to collect Rs. 20 as TCS and pay the remaining Rs. 1,980 to the seller.

After deducting this TCS, Amazon must submit it to the government and upload a statement detailing all the outward sales through its platform and the TCS collected within 10 days of the subsequent month.

Vendors can claim credit for the TCS deductions based on the statement Flipkart files.

Impact of TCS

For better or worse, TCS is expected to:

  • Reduction in tax evasion:TCS enables the government to collect tax and information at the source, which will act as a check on vendor tax evasion.
  • Negative impact on the cash flow of vendors: This is one of the biggest worries for online vendors, especially considering the already thin profit margins when selling goods. Handling returns, which are estimated to occur on 15 to 20 percent of e-commerce sales, will further compress cash flow.
  • A burden for vendors:If there’s a mismatch between the information the e-commerce operator files and the information the vendor files, the entire tax burden will fall to the vendor, no matter where the fault lies.
  • Difficulty for e-commerce operators:Platform updates will be needed to handle monthly TCS filings, as well as to address purchasers’ ITC claims, given that under GST there are no restrictions on claiming ITC.
  • What’s still unclear is how TCS will impact:

Sales of exempt goods

Cash on delivery (COD) sales

C2C transaction (Olx, Quickr, etc.)

Service aggregators (Uber, Ola, etc.)

[ Read: TCS Applicability ]

E-commerce Operators Views on TCS

E-commerce operators haven’t exactly welcomed TCS with open arms. At an FICCI press conference in February, online retailers Flipkart, Snapdeal, and Amazon voiced their concerns, saying the new measure could result in a capital lock-down of about Rs. 400 crore for sellers and discourage them from selling online.

GST being a one-nation tax and a destination-based tax, it will surely soothe many of the problems the e-commerce industry faces today, especially in terms of logistics and tax compliance. However, considering the reactions of the country’s major e-commerce players, the government may want to consider making the law more industry friendly to help sustain e-commerce growth.


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H&R Block India
H&R Block India
H&R Block India is the subsidiary of the world's leading tax filing company, H&R Block, US. In India we provide online and personalised tax filing services for individuals, professionals and businesses. We also provide managed services for GST.

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