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E-commerce players loses GST rate battle after levy of 1% TCS on sellers

Karan Choudhury/New Delhi 20 May 17 | 02:38 AM

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Even after months of discussions with the government and putting forward representations via sectoral bodies, e-commerce players lost the GST battle. The government on Friday said one per cent tax collected at source (TCS) would be charged by e-commerce companies.

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In the absence of any straightforward classification, e-commerce companies find it tough to convince the government to treat them not as a “shop" but as a “platform", which vendors use to sell products.

Under the new goods and services tax (GST) regime, this will imply e-commerce firms will have to deduct one per cent TCS while making payments to their suppliers. This, e-commerce stalwarts such as Amazon, Flipkart, Shopclues, and Snapdeal have argued, will lock Rs 400 crore of capital belonging to their sellers every year in the GST regime.

“The one per cent TCS is a working capital hit and a hindrance. I don't think it is end of the world, but it would be better if it was not there. It would lock up working capital for small sellers," said Ananth Narayanan, chief executive officer, Myntra.

Tax is collected by the seller from the buyer at the time of sale of a specified category of goods. Applied to e-commerce, this means every e-commerce operator would have to collect tax at source of the amount payable to the supplier of goods and services and such collection is reported to the government. 

Under GST, TCS is only for e-commerce companies. Some industry experts say while the one per cent tax cap is fine, the problem is with compliance. They argue that e-commerce companies are enablers and should not be treated as shops, which sell what they buy and are taxed accordingly.

“Basis Media reports, while the GST Council meeting proposed a one per cent tax collection at source on e-commerce transactions, the intention appears that the same would cover both CGST and SGST within the said rate, which could bring some relief to the said industry on the overall funds blockage. Although this would undoubtedly add substantial compliance burden on e-commerce operators, the idea is to bring this industry into the organised tax compliance space, which has historically been a challenge," said Krishan Arora, partner, Grant Thornton India LLP.

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