E-commerce Operators and their suppliers have been granted a welcome relief by the Central Government with the Ministry of Finance issuing a public statement on June 26, 2017 through which it has been announced that the implementation of provisions of Sections 51 and 52 of the Central Goods and Services Tax and State Goods and Services Tax has been postponed. This postponement in implementation gives E-Commerce Operators and their suppliers time to prepare for this major tax reform.
Who is an E-Commerce Operator?
Section 2(45) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST”) defines the term “electronic commerce operator” to mean any person who owns, operates or manages digital or electronic facility or platform for electronic commerce.
Parties Mandatorily Required to Register under GST
Any supplier who carries on any business at any place in India and whose aggregate turnover exceeds threshold limit as prescribed for a Financial Year is liable to get himself registered. If the annual turnover of a person in a given financial year exceeds INR 20 lakhs (INR 10 lakhs for Special category states), such persons are liable to register. The special states are Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
However, certain categories of persons mentioned in Section 24 of the CGST are liable to be registered irrespective of this threshold. It is pertinent to mention that persons who supply goods and/or services through electronic commerce operator and every electronic commerce operator are mandatorily required to register.
Tax Deductible at Source (TDS)
Section 51 of the CGST provides that such entities that may be notified by the Government are required to collect Tax Deducted at Source at one per cent on payments to suppliers to goods or services in excess of INR 2.5 lakhs.
This basically means that tax would be deducted @1% of the payment made to the supplier of taxable goods or services or both, where the total value of such supply, under a contract, exceeds INR 2,50,000/-. It is important to note that the total value of such supply excludes the amount of Central tax, State tax, Union Territory tax, Integrated tax and cess indicated in the invoice.
Another important point to be kept in mind is that even though individual supplies may be less than INR 2,50,000/-, if the contract value is more than INR 2,50,000/-, TDS will have to be deducted. However, no deduction shall be made if the location of the supplier and the place of supply is in a State or Union territory, which is different from the State or Union Territory, as the case may be, of registration of the recipient.
Tax Collectible at Source (TCS)
While TCS has several similarities with TDS, it has certain distinctive features as well. TDS refers to the tax which is deducted when the recipient of goods or services makes some payments under a contract etc. while TCS refers to the tax which is collected by the electronic commerce operator when a supplier supplies some goods or services through its portal and the payment for that supply is collected by the electronic commerce operator.
Under Section 52 of CGST, the Government has placed the responsibility on E-Commerce Operators to collect the ‘tax’ at a rate of 1% from the supplier. The E-Commerce Operator shall collect the tax by paying the supplier, the price of the product/services, less the tax, calculated at the rate of 1%. The tax to be collected will be calculated on the net value of the goods/services supplied through the portal of the Operator.
The move to delay implementation of the provisions of Section 51 and 52 of the CGST will provide some relief to small businesses with a turnover less than INR 20 lakhs (INR 10 lakhs for Special category states) that are required to register with the GST portal for selling goods or services through e-commerce operators. However, the relief is temporary in nature as the liability to deduct or collect tax will arise from the date when the respective sections are brought in force and such persons will have to undergo the registration process.