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TDS, TCS deferred for smooth GST rollout
June, 27th 2017

Within less than a week for the GST to go live, Centre has deferred implementation of TDS and TCS provisions, over which e-commerce firms had engaged in debate with the government citing additional compliance burden and working capital lock-down for merchants selling online.

Now, e-commerce firms would not be required to collect the 1 per cent Tax Collection at Source (TCS), while making payment to their merchants under the new tax regime, which will kick-off from July 1. The finance ministry on Monday said to ensure smooth roll-out of GST and taking into account the feedback received from the industry regarding the provisions of TDS and TCS are kept in abeyance.

“Extension of timeline for TCS is aligned to request from the e-commerce industry. This is entirely new for indirect tax, and therefore the best way to implement would be to provide detailed norms with case studies. The purpose is to track transactions and not collect tax; and therefore it is imperative that the ‘collectors’ have clear point of view from the government. There would be no merit in later disputing with a collector why tax was not withheld correctly on the grounds of technical interpretation of provisions,” said Divyesh Lapsiwala, Tax Partner, EY India.

Originally, the rate of TCS was set at 2 per cent, but was later reduced to 1 per cent, after online retailers made representations that 2 per cent TCS would result in freeze working capital for sellers to the tune of Rs 400 crore every year, and discourage them from selling online. “This step has been taken to provide more time for persons liable to deduct tax at source/e-commerce companies and their suppliers to prepare for the historic tax reform,” the official statement said.

The finance ministry statement also said that small businesses with turnover less than Rs 20 lakh selling on e-commerce platform would be exempted from registration.

A spokesperson of the All India Online Vendors Association (AIOVA) said that while sellers welcomed the move, they would like to see the TCS clause being implemented at the earliest as it would give a level playing field. “This also gives relaxation to sellers of exempted goods like books, for which there is no clarification if they need to be registered for GST and TCS,” the spokesperson said. AIOVA, in a June 22 e-mail to the e-commerce sectoral working group formed by GST Council, seeking certain clarifications on TCS clause, among various other issues being faced by online merchants selling through marketplaces. The working group responded to AIOVA’s queries saying that the concerns raised would be examined and flagged to the appropriate authorities.

Amazon India, in response to an e-mail query sent by The Indian Express, said that the move would benefit smaller businesses, which would otherwise be dealing with pressures of cash flow. “We welcome the decision of the government to keep the TCS provisions in abeyance. This will benefit small businesses since they don’t have to deal with pressures of cash flow at a time when they are transitioning into a new tax regime. We are grateful to the government for acceding to the request of the industry which is still in its infancy,” an Amazon India spokesperson said.

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