Tax Collected at Source (TCS) under GST with Example

From 1st October 2018, the Indian Government made it mandatory for e-commerce operators to collect TCS under GST. From 1st January 2022, food delivery aggregators were also brought into the scope of this regulation. The goal was to improve transparency in indirect taxation, increase tax collection, and avoid tax evasion.

Whether you are an e-commerce operator or a business selling your products online, you need to know about TCS under GST. Knowing what TCS is in GST, is TCS deduction on the gross or net amount, GST TCS rate, etc., will help you manage your taxation more effectively. So, let us look at this tax liability, who is responsible for collecting it, the requirements and implications, and so on.

What Is TCS under GST?

TCS, or Tax Collected at Source, is a tax a seller collects from a buyer during the purchase of certain specified products. The seller collects the tax but submits it to the government. Therefore, it is an indirect tax that a seller has to pay the government but which is ultimately paid by the buyer.

TCS applies to specific product categories; the tax rate depends on the category. Section 206 C of the Income Tax Act, 1961, mentions the items on which TCS is applicable. Some of these are Mining and Quarrying, Automobiles, Scrap, etc. The rate is usually between 1% and 5%.

Pro-tip

It is important for you to understand how TCS under GST applies to your business. Whether you are an e-commerce operator or sell your products and services online, knowing about TCS will help you to avoid taxation challenges. It will also help you to anticipate your revenue and cash flows more accurately. And you can avoid accidentally getting penalized for tax default.

GST stands for Goods and Services Tax. It is an indirect tax applicable on the sale of both goods and services. The onus for levying GST is on the seller, and the buyer can get GST credit from the government if applicable. The rates for GST vary based on the product and fall in one of five slabs. The slabs are 0%, 5%, 12%, 18%, and 28%.

TCS under GST refers to TCS that applies to e-commerce operators. The operators collect the tax from the amount they received on the sellers’ behalf. When buyers pay the e-commerce operator, they deduct the TCS amount before passing it to the sellers. TCS rate under GST is applicable as a percentage of net taxable supplies. Let us understand TCS under GST with example.

For example, a food delivery platform offers delivery of food from multiple restaurants and cloud kitchens. A customer orders food from a Chinese food restaurant via the food app. If the consideration payable to the restaurant is ₹ 1000, and the GST TCS rate is 1%, the delivery platform will collect ₹ 10 as TCS and give the restaurant ₹ 990.

This provision was introduced on 1st October 2018. Section 52 of the CGST Act deals with this provision of tax collected at source under GST. But what does the Act say regarding who is responsible for collection? The following section will explain who is liable to collect the TCS rate under GST and if you are one of those who are liable.

Who Is Liable to Collect TCS under GST?

E-commerce platforms that collect payment on behalf of vendors are liable to collect TCS under GST. They are liable to collect it if they own, manage, and operate such e-commerce sites. They must deduct the relevant amount as TCS on GST before paying the net collected amount to the vendor.

However, there are a few exceptions to this TCS rule in GST. These are platforms that supply the following –

• Passenger transportation services like radio taxis, motor cabs, etc.
• Housekeeping services like electricians, plumbers, etc., who are unregistered suppliers
• Hotel accommodations/clubs that are unregistered suppliers

There is a step-by-step process to check if you are liable to collect TCS under GST. 

Step 1: Are you an e-commerce operator who owns, operates, or manages an e-commerce platform?

Step 2: If no, then you have no TCS collection liability. If yes, check Step 3.

Step 3: Do suppliers/vendors sell taxable supplies through your platform?

Step 4: If no, then you have no TCS collection liability. If yes, check Step 5.

Step 5: Do you collect the consideration from buyers on behalf of your suppliers/vendors?

Step 6: If no, then you have no TCS collection liability. If yes, check Step 7.

Step 7: Do you supply any of the three services online mentioned earlier as exceptions (passenger transport, housekeeping services, hotel accommodations/clubs)?

Step 8: If yes, then you have no TCS collection liability. If no, check Step 9.

Step 9: You must deduct 1% of the Net Value of Taxable Supplies as TCS in GST.

Here is a visual representation of this process.

After understanding how to decide if you can collect TCS, let us discuss when you need to collect it.

When Is the Collection of TCS Mandatory?

The collection of TCS is mandatory if you are an e-commerce operator who collects considerations on behalf of sellers (other than exceptions). 

As a liable collector of TCS in GST, you will deduct the amount when paying your sellers. For example, if you have to pay a clothing seller ₹ 780 and deduct ₹ 7.80 as TCS under GST, you will pay your seller only ₹ 772.20.

As an e-commerce operator liable to pay TCS in GST, you must pay the collected TCS amount to the government. But how much should you deduct as TCS in GST, and is the rate different from other TCS rates? Let us discuss that next.

What Is the Rate Applicable under TCS?

The rate applicable under TCS varies depending on the category of goods. The rate usually varies from 1% to 5%. For example, the TCS rate for Tendu leaves is 5%, while the rate for timber sourced from leased forests is 2.5%.

For tax collected at source under GST, the applicable rate is 1%. This rate has been notified under the CGST (Central Goods and Services Tax) and IGST (Integrated Goods and Service Tax) Acts by the CBIC (Central Board of Indirect Taxes and Customs).

For example, if you have to pay your vendor a consideration of ₹ 100,000, you will collect ₹ 1,000 as TCS and pay the rest to your vendor.

The applicable TCS rate is 1% under the IGST Act if the transfer is between states. But if the transfer is within the same state, then the TCS amount of 1% is split as 0.5% under CGST and 0.5% under SGST (State Goods and Services Tax).

For example, if you deduct ₹ 1000 as TCS under IGST due to inter-state transfer, you will deposit the total amount to the Central Government. However, if the transfer is intra-state, you will deposit ₹ 500 with the Central Government under CGST and ₹ 500 with the State Government under SGST.

After discussing the applicable rate for TCS in GST rule, let us look at the registration requirements.

Registration Requirements under TCS Provisions of GST

Under TCS provisions in GST, all liable e-commerce operators and all suppliers to whom TCS applies need to register for TCS. There are some mandatory requirements for their registration. These are:

• If you are an e-commerce vendor liable to collect TCS, you must compulsorily register.
• If you are a seller on an e-commerce platform, you must compulsorily register. Exceptions are applicable in two cases.
  1. If you sell passenger transport, housekeeping services (unregistered suppliers), and accommodation providers (unregistered suppliers). However, these exceptions apply only if your annual aggregate turnover is less than 20 or 40 lakhs (not making inter-state supplies) registration threshold.
  2. If you sell services with an annual aggregate turnover of less than 20 lakhs or, if you don’t make inter-state supplies, 40 lakhs.
• If you supply goods through an e-commerce platform, you must register.
• If you are an e-commerce operator, you must register for GST in every state where you supply goods and services.

What Is the Due Date for Depositing Tax Collected at Source (TCS)?

TCS in GST is collected during the month of supply. The amount collected throughout the month is deposited with the government within the 10th of the following month. For example, for supplies made in June 2023, you will collect TCS throughout June and deposit it by 10th July 2023.

You need to make the payments as follows:

• IGST payments go to the Central Government
• CGST payments go to the Central Government
• SGST payments go to the State Government

If the TCS is not submitted within the due date, there is a penalty of 1% of the outstanding amount. This penalty amount is paid by the party liable to collect, that is, the e-commerce operator. You cannot charge this amount from the vendors from whom you collect the TCS amount.

The TCS you submit under GST is calculated on a specific value of goods and services delivered by the e-commerce portal. Let us look at how you can calculate the value of the goods and services on which to apply TCS.

How to Compute Taxable Value of the Supplies for TCS?

Before deducting the applicable amount of TCS in GST, you need to know the value of the goods and/or services on which TCS can be applied. This amount is called the taxable value of supplies.

You can compute the taxable value of the supplies for TCS in GST by finding the “Net Value of Taxable Supplies”. This term refers to the value of the goods actually delivered by the e-commerce platform on behalf of the seller. To calculate this amount, you can adopt the following steps –

Step 1: Calculate the total value of all taxable goods and/or services delivered for a particular seller. While calculating this total, you must exclude the services that are exceptions to TCS in GST (accommodation, passenger transport, and housekeeping). Let’s call this value Amount A.

Step 2: Calculate the total value of all taxable goods and/or services you have returned to the seller. Let’s call this total Amount B.

Step 3: Subtract Amount B from Amount A. Let’s call this difference Amount C. This Amount C is the Net Value of Taxable Supplies.

Once you have the net value of taxable supplies, you will collect TCS under GST at 1% and pass on the balance amount to the vendor. Here’s an example to demonstrate.

ABC Ltd. sells taxable goods worth ₹ 70,000 through an e-commerce portal in March 2022. Of these sales, goods worth ₹ 17,000 are returned to ABC Ltd. So, the Net Value of Taxable Supplies for AMC Ltd. is ₹ 53,000. The e-commerce operator will deduct ₹ 530 as tax collected at source under GST from ABC Ltd. and pass on ₹ 52,470 to them.

Once you collect and submit the TCS to the various governments, you must also file TCS Returns. The next section will discuss what returns are and how you can file them.

Which Form Can One Use to File TCS Returns?

It is essential to file TCS Returns for the reconciliation of tax payments. E-commerce operators can file returns for tax collected under GST through Form GSTR 8.

GSTR 8 shows details of supplies made through the e-commerce platform by a supplier. It also shows the amount of tax collected at source by the platform operator. The supplier can claim tax credit only once the operator files TCS returns via GSTR 8. 

The suppliers can find the details submitted via GSTR 8 by the e-commerce operator in GSTR 2A. They can access these details after GSTR 8 has been filed. The details of the tax collected are reflected in their respective electronic cash ledgers. Suppliers can reconcile their supplies with GSTR 2A data and claim tax credits, if applicable.

GSTR 8 has 9 sections to be filled in:

1. GSTIN or Goods and Services Tax Identification Number of the e-commerce operator. GSTIN is a unique 15-digit number. It is assigned to every person registered for GST. You can use your provisional ID if you don’t have a GSTIN.

2. The legal name of the registered person filing the return. “Person” here can refer to a business or individuals. The taxpayer’s name is auto-populated at the time of logging in.

3. The gross values of supplies made to and returned by registered and unregistered persons. The difference between these two values will give you the next taxable value for TCS under GST. These details can be mentioned in the following format –

4. Any revisions to the TCS data submitted in the previous month. If there are any changes or amendments to make to it, you can do it in the following format in the current GSTR 8:

5. Details of interest due on TCS amount. This usually happens if the TCS is not paid on time. In such cases, you need to mention the amount of default and the amount of interest due to IGST, CGST, and SGST.

6. Tax payable and paid. You will include details of tax payable under IGST, CGST, and SGST, as well as the amount of tax already paid.

7. Interest payable and paid. Similar to the above section, you need to give details of the interest on late payment of TCS that is payable and already paid under IGST, CGST, and SGST.

8. Refund claimed by the supplier from the electronic cash register. However, such a refund can be claimed only after all tax, interest, penalty, etc., for the applicable period have been paid.

9. TCS/interest payment debit entries in the electronic cash register. This portion is populated after tax has been paid and returns have been filed.

GSTR 8 cannot be amended after it is submitted. If there is any discrepancy while matching and reconciling GSTR 2A and the supply data, the e-commerce operator and supplier are informed. If no correction is made by the due date, usually the next month’s return, the extra tax is added to the supplier’s liability. If any interest is applicable, the supplier has to pay that too.

What is Impact of the TCS Provisions?

Implementing TCS provisions under GST have significantly impacted e-commerce operators, vendors who sell through online platforms like Amazon, Flipkart, etc., and Central and State Governments.

Impact on e-commerce operators:

• They have to register for GST TCS in every state in which they operate.
• Their ERP systems have to be integrated well enough to implement the necessary GST law on relevant daily transactions.

Impact on suppliers:

• A portion of their working capital is blocked until they can claim a refund for excess taxes after the e-commerce operator files returns. This can affect their ability to sell or supply products.
• The total cost of the product might increase, or the margin might reduce.

Impact on Central and State Governments:

• Tax evasion is reduced due to increased transparency and accountability in every transaction.
• The total tax collected can increase as there is less opportunity for tax evasion.

Conclusion

It is critical for businesses to follow the government taxation regulations of the country they operate in. This applies even to online businesses operating in India. They must follow the TCS rule in GST for selling and distributing goods online. This regulation has a few exceptions, but most online sellers and e-commerce operators are subject to GST TCS.

This post discusses in detail what is TCS under GST, who is liable to collect it, what is the applicable rate, and when it is collected. It also discusses how and when to file TCS returns, how it can impact your business and other details. This discussion might help you to understand and implement TCS in GST for your online business more easily.

Jainy patel

Jainy Patel is a content editor having over 7 years of experience in the B2B & SaaS industry. With a keen eye for detail, she’s always striving to create content that resonates with the target audience. Her interests include reading, traveling, and staying up-to-date with the latest marketing trends.