Compliance Guide for E-Commerce Sellers: TDS vs TCS

E-commerce platforms have been a major boon for new and budding companies, providing pan India customer base and a host of other services in helping them grow. However, working with e-commerce platforms attract lots of compliance issues and complexities which one might be caught unaware. This article will focus on coverage of important compliances to be done by E-commerce sellers with respect to Income Tax and Goods and Services Tax provisions.

Income Tax TDS Provisions

This is one area which is often missed out even by tax professionals. While selling goods or providing services through e-commerce platforms, the e-commerce operator (e.g. Amazon, Flipkart) charges a commission for sales made and fee for other services like shipping, handling etc. These charges are often deducted from the settlement done by e-commerce operator. Here lies the catch. These platform usage charges (commission, shipping etc.) are expenses for the business of E-commerce seller and attract TDS provisions i.e. if TDS is not deducted and paid on these expenses, you will end up paying income tax on these expenses too i.e. these will be disallowed while computation of taxable income. Following TDS provisions are attracted:

To help businesses comply with these provisions, operators like Amazon and Flipkart follow a policy of Reimbursement of TDS subject to submission of Form 16A with them. The process is as follows:

1. It starts with depositing TDS with income tax authorities,
2. obtaining the TDS certificate in Form 16A
3. Creating a reimbursement request with the E-commerce operator and submitting the TDS certificate and;
4. Finally receiving the TDS amount as reimbursement.

This entire process is lengthy and time-consuming but at the same time saves the business from unnecessary TDS penalties and disallowance of expenses paid to e-commerce platforms later during assessment proceedings.

Goods and Service Tax

The advent of GST has ushered a tiring process of reconciliation for the sellers on e-commerce platforms with invoice-wise data being uploaded in GSTR-1 monthly. To add to online business’ woes, provisions of TCS have been made applicable on e-commerce platform with effect from 01st October 2018. This will impact the online sellers as well as the E-Commerce Operators, with increased administration and compliance costs for both and increased working capital requirement for the sellers.

The flow of TCS is as follows:

• The calculation and deduction rate of TCS is 1% of the net value of the goods or services supplied through the ecommerce operator. For instance, a supplier sells his product worth INR 10,000 through Amazon (total amount being 10,000 + GST@18% = 11,800). The entire amount would be collected by Amazon. This revenue would be transferred to the supplier by Amazon after deducting 1% tax (i.e. INR 100), which is called TCS. Net amount transferred will be INR 11,700. This 1% TCS would be remitted to the government. The TCS (INR 100) remitted by the ecommerce operator will be provided as credit to the supplier.
• The amount collected by an ecommerce operator as GST TCS must be remitted with the Government before 10 days after the end of the month in which the particular amount was collected.

This exercise allows the government to track non-reporting of sales transactions by E-commerce sellers. E.g. If a supplier has a TCS credit of INR 7,500 in the month of December, his total revenue from E-commerce sales should be INR 7,50,000 (INR 7500/1*100). Any short reporting would raise a red flag in GSTN systems. The differences in sales revenue arising due to sales returns is another issue to be tackled. The same needs to be reconciled for proper reporting in GSTR-1.

The author can also be reached at ca.apuravgarg@gmail.com