New Delhi: The onerous tax collected at source (TCS) provisions under the goods and services tax (GST) regime will take effect on 1 October, adding to the compliance burden of e-commerce companies but giving tax authorities another tool to check tax evasion.

The government on Thursday notified the provision part of section 52 of the central GST Act. It had been kept in abeyance since the rollout of GST on 1 July last year.

Its implementation comes at a time GST revenues are lagging behind budgeted targets and the tax authorities are struggling to stabilize revenues at higher levels.

The government is hoping that these provisions along with the e-way bill implementation will prevent non-reporting and under-reporting of transactions thereby enlarging the taxpayer base.

E-commerce platforms provide many goods for sale from various suppliers on their website. As per section 52 of the GST Act, TCS has to be 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.

E-commerce firms will have to deduct tax at the rate of 1% (CGST)+1% (SGST) before making the payment to the supplier for proceeds of sale, as per the provisions of the act.

When it comes into force, it will provide powers to the tax department to monitor e-commerce transactions and ensure that suppliers selling their goods on e-commerce platforms do not get away with under-reporting their turnover.

E-commerce operators had opposed this measure arguing that it will add to their compliance burden due to the cumbersome reporting provisions, while encouraging sellers to choose offline channels. 

E-commerce firms have to furnish a monthly statement and an annual statement containing details of the outward supplies. In addition, they have to deposit the TCS collected by 10th of the next month in which the tax is collected. 

The marketplaces had also argued that the tax would block much-needed capital for 25-50 days besides further squeezing small sellers by placing an additional burden on their working capital. They added that the tax discriminates between online and offline market places. 

M.S. Mani, partner, Deloitte India said businesses were expecting the provision to be implemented only from next year. 

“The earlier rollout could have been prompted by the desire to improve revenues and plug possible leakages," Mani said.

The government has also notified provisions that require government departments and public sector undertakings to deduct tax at source while making payments to vendors and contractors.

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