E-commerce companies to levy 1% TCS on sellers; consumers to be unaffected

Experts have said that the upcoming GST tax rate of 1% on e-commerce companies that they will pay to sellers is unlikely to affect online consumers.

E-commerce players like Flipkart and Snapdeal will have to deduct 1% tax collected at source (TCS) while making payments to suppliers once the GST is implemented from July 1, 2017. Representational Image. Image Source: Pixabay

E-commerce consumers are likely to remain unaffected once goods and services tax (GST) sets in from July 1 even as players like Flipkart and Amazon prepare to deduct 1% of the payment it makes to sellers under the new tax regime.

While the move is not expected to impact consumers directly, it is expected to bring more transparency as the tax collection system gets more streamlined, experts said.

Revenue Secretary Hashmukh Adhia on Friday announced that e-commerce players like Flipkart and Snapdeal will have to deduct 1% tax collected at source (TCS) while making payments to suppliers.

"We believe GST is good for the e-commerce industry as it would eliminate hurdles in inter-state delivery and subsume the entry tax introduced on e-commerce shipments by some states," an Amazon India spokesperson said.

The US-based firm, which competes with Flipkart, said it is studying the developments very closely and is working on enabling its seller ecosystem to be compliant with GST regulations.

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"As always, we will work customer backwards to ensure they are not inconvenienced," the spokesperson said.

Flipkart and Snapdeal -- the other two big players -- did not respond to emails.

In February, the online retail heavyweights had come together to voice concern around TCS. They had claimed that if TCS was implemented, it would result in a capital lock-down of about Rs 400 crore per annum and discourage merchants from selling online.

While the move will reduce the possibility of tax evasion, some experts feel that it could lead to procedural hassles for e-commerce companies who will now have to follow additional compliances.

Saloni Roy Senior Director, Deloitte Haskins & Sells feels that the new stipulation in the form of TCS would require "significant additional compliance".

This is because under the new system, the details furnished by e-commerce operators would need to be matched with the corresponding details of concerned merchants and discrepancies, if any, would require correction.

The purpose behind introduction of these provisions is effective tracking and ensuring that all supplies are captured within the tax system, she explained.

"All merchants supplying goods/services online need to register, irrespective of threshold. (However) These provisions have the possibility to discourage sellers to come online to supply their products through e-commerce operators," she added.

Nasscom President, R Chandrashekhar said that the IT industry association has been maintaining that such a collection process (TCS) was not desirable.

"However, it has been kept at 1%, which is the lowest... We will need to see the compulsion that necessitated TCS and the rigmarole of collecting it," he added.

However, All India Online Vendors Association (AIOVA) welcomed the latest development saying it will reduce the possibility of tax evasion by sellers.