TCS on E-Commerce Operators

The Government has notified the effective date of implementation of TCS provisions in GST returns w.e.f. 1.10.2018 (unless extended). This requires E-commerce operators like Amazon, Flipkart, etc. to collect TCS on the Transaction made by the suppliers through their portals w.e.f. the same date. If any under reporting is found, the same would be penalized by adding to the account of the supplier. The learned authors looks at the related provisions to bring attention to them so as to avoid penal actions.

As many transactions nowadays are happening through e-commerce mode, their day to day use in life is increasing. But with the implementation of GST, selling and purchase through GST is not as easy as it was earlier. There are many boundaries and restriction while transacting through E-Commerce. We will discuss here the provisions of TCS on E-commerce Operators.

E-commerce is the buying and selling of goods and services on the internet electronically and making payment electronically or via any other mode. Section 2(44) of CGST Act defines the term ‘e-commerce’ as the supply of goods or services or both, all the traders/dealers selling goods/services online would need to get registered under GST even if their turnover is less than 20 Lakh for claiming the tax deducted by E-commerce operators.

Firstly it is important to understand the difference between E-commerce Operators and E-Commerce Suppliers:

1. E-Commerce Operator

 An entity like Amazon, Paytm-Mall, and Flipkart etc. that owns operates or manages digital platform for e-commerce. Section 2(45) of the CGST Act, defines “E-commerce operator” as any person who owns, operates or manages digital or electronic facility or platform for e-commerce.

2. E-Commerce suppliers

An entity that supplies goods or services on a digital ecommerce platform, means any entity which is supplying goods or services through E-Commerce operator and will be termed as E-Commerce Suppliers.

3. Liability to collect TCS

As per provision of section 52 of the CGST Act, every e-commerce operator, not being an agent is required to collect tax known as TCS on the net taxable value in case a supplier supplies some goods or services through its portal and the payment for that supply is collected by the e-commerce operator.

Tax is to be collected on net taxable value of goods or services supplied by other suppliers through e-commerce operator.

Tax is to be collected on net taxable value of goods or services supplied by other suppliers through e-commerce operator.

Explanation to section 52(1) clarifies that “net value of taxable suppliers” shall mean the aggregate value of taxable suppliers of goods or services or both made during any month by all registered persons through the e-commerce operator as reduced by the aggregate value of taxable supplies returned to the suppliers during the said month. Further, specified services on which ecommerce operator itself is liable to pay GST under section 9(5) is not included in the net taxable value and thus, no tax is to be collected on such amount.

4. Rates of TCS

An e-commerce operator needs to collect tax @2% (1% CGST + 1% SGST) from the supplier on the net taxable value of intra state supply of goods or services supplied through its portal.

Any dealer/traders selling goods/services online would get the payment after deduction of 2% tax. They would need to deposit the tax deducted by the 10th day of the next month.

Mr. X is a trader who sells his ready-made clothes online on Flipkart. He received an order for Rs.10,000 inclusive of tax and commission. Flipkart charges a commission of Rs.200. Flipkart would, therefore, need to deduct 2% tax (TCS) on the amount, including the money paid as  commission (Rs. 200) and GST (Rs.1800 when GST @ 18%) Flipkart would thus be deducting tax for Rs.200 (2% of Rs.10000)

5. Notice to the E-Commerce Operators

A Deputy Commissioner or a person above the rank of Deputy Commissioner can issue a notice to the E-Commerce Operator asking him to furnish details regarding the volume of Goods/Services supplied, rate and value, goods still lying in godown etc.

On receiving such notice the operator is required to furnish such details within 15 working days. In case the operator fails to furnish such information within 15 days, he would be liable for penal action and penalty upto Rs.25000.

Further other relevant points can be noted out which are as follows:

  • The seller is required to follow the process of filing other GSTR Returns as applicable from time to time
  • The seller is required to disclose the sale made through GSTR-1 Return. The GST no. of the E-commerce portal is required to be disclosed in GSTR-1.
  • The E-commerce portal would be specifically required to raise an invoice to the seller for the commission being charged by them for selling the product on the E-Commerce portal.

6. Conclusion

Subject to above there are many other rules which are required to be followed by E-Commerce Operators. The government has notified the effective date of implementation of TCS Provisions in GST Returns with effect from 1.10.2018 (unless otherwise extended). Thus E-Commerce Operators like Snapdeal, E-bay etc. have to collect TCS on the transactions made by the suppliers through such portals w.e.f. 1.10.2018.

Further E-Commerce operators are required to timely deposit the TCS and also required to furnish monthly and annual return of TCS. Further sale entered in GSTR-1 will be compared with the report of supplies by E-Commerce operators furnished in GSTR-8. If any under reporting is found, the same will be penalized by adding to the account of the supplier.

Thus TCS provisions need to be carefully looked at as any discrepancies found may lead to penalizing actions.

Implication of GST on Transfer of Business - At Glance

1. Prologue

Corporate Restructuring through amalgamation, arrangement, mergers, acquisition and takeover has become vital to corporate strategy to day. To attain accelerated growth, corporate in India now a days resort more towards restructuring strategies. The Goods and Services Tax (GST) has been envisaged as an efficient tax system and it affects the structuring of the various operations in India. Corporate transaction in pursuance of amalgamation, arrangement, mergers, acquisition and takeover are also affected by GST. Thus, the industries are required to analyse the provisions of the GST Law and its impact on their business.

2. Registration

Registration of any business entity under the GST Law implies obtaining a unique number from the concerned tax authorities for the purpose of collecting tax on behalf of the government and to avail Input tax credit for the taxes on his inward supplies. By virtue of section 22(3) of the CGST Act, where a business carried on by a taxable person registered is transferred, the transferee or the successor would be liable to be registered with effect from such transfer or succession and he will have to obtain a fresh registration with effect from the date of such transfer or succession.

Section 22(4) states that if the business is transferred as an order of a High Court, Tribunal or otherwise pursuant to –

  1. Sanction of scheme

  2. Arrangement for amalgamation

  3. De-merger of two or more companies,

The transferee would be liable to obtain registration from the date on which the Registrar of Companies issues a certificate of incorporation giving effect to such order of the High Court or Tribunal.

3. Input tax Credit

Section 18 enshrines the provisions regarding availment of input tax credit by taxable person. Section 18(3) of the CGST Act as well as rule 41 of the CGST Rules stipulates that in case of change of constitution of a registered taxable person on account of sale, merger, demerger, amalgamation, lease or transfer of business, the registered person would be allowed to transfer the unutilized input tax credit to transferor. In this context, the registered person is required to furnish the details of sale, merger, de-merger, amalgamation, lease or transfer of business in Form GST ITC-02 electronically on the Common Portal along with a request to transfer the unutilized input tax credit lying in his electronic credit ledger to the transferee. The transferee would accept the details so furnished by the transferor on the Common Portal and, upon such acceptance, the unutilized credit would be credited to his electronic credit ledger.

In the case of demerger, the input tax credit would be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.

4. Itemised Sales

Where assets and liabilities of a business are transferred by way of assigning a value to each item then it is called as itemized sale. Such sale involves the disposal of key or selected business assets. Under the merger and amalgamation, value of each asset is calculated separately i.e. the whole business is transferred but item wise.

Transaction of itemized sale is supposed as supply under the ambit of GST and individual asset would covered under the definition of goods as per schedule II of the CGST Act. Thus, GSt would levy on itemized sale.

5. Slump Sale

Slump sale will have the same treatment as normal supply. Under the GST regime tax is payable by the registered taxable person on the supply of goods and/or services. The term ‘Supply’ is wide in its import cover all forms of supply of goods or services or both that includes sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. Further, supply covers the activities to be treated as supply of goods or supply of services as referred to in Schedule II. Accordingly, transfer of business assets is supposed as supply.

The transfer of business is amounted to transfer of a part of the assets and not the whole business. Moreover, para 4© of the schedule II specifies that in case business is transferred as a going concern then it would not constitute as supply. However, in pursuance of Notification No. 12/2017 Central tax (rate) dt 28.06.2017 services, which are provided by way of transfer of a going concern as a whole or an independent part thereof, are exempted from GST. Thus, no GST would applicable on slump sale transaction as transfer of business on a going concern basis.

6. Liability of companies w.r.t. order of court or Tribunal

According to section 87 of the CGST Act, when two or more companies are amalgamated or merged in pursuance of an order of court or of Tribunal or otherwise and the order is to take effect from a date earlier to the date of the order and any two or more of such companies have supplied or received any goods or services or both to or from each other during the period commencing on the date from which the order takes effect till the date of the order, then such transactions of supply and receipt would be included in  the turnover of supply or receipt of the respective companies and they would be liable to pay tax accordingly.

Such two or more companies would be treated as distinct companies up to the date of order and the registration certificates of companies would be cancelled with effect from the date of the order.

7. Sale of Securities

In most case, the usual mode is the acquiring of company by making an offer by the transferee company to the shareholders of the transferor company to purchase their securities, in the transferor company, at a price stated for the purpose. The definition of goods as well as services under the GST regime do not cover the securities, therefore GST would not be levied on the sale of securities.

8. Summing Up

Goods and Services Tax have impact on each and every industry and business in India. Transfer of business under mergers, amalgamation and acquisitions do not attract any tax liability under GST regime, they are unlikely to impacted by indirect taxation. For calculating the Capital gains, the holding period is calculated from the date of original purchase of shares. The companies who opt for merger and acquisition, the liability to register arises on the date of transfer for transferee of a business as going concern. Further, GST Law stipulates transfer or sale of business assets can take place either as a slump sale or itemized sale. In case of change of constitution of a registered person on account of sale, merger, demerger etc, the unutilized ITC would be allowed to be transferred to transferee. Thus, GST Law brought the immense clarity on the taxability of business transfer and related aspect thereof.

Cash Transaction under Income Tax Law

Introduction:

Many people have question about maximum cash they can give or accept without facing any problem under Income Tax Act.

People have lot of doubts on one can accept cash and give cash whether in form of loan, advance, deposit or against a business transaction.

  1. How much cash sales one can do in a day?
  2. How much cash sales one can do with a single person in a day and in a year?
  3. How much cash loan, deposit or advance one can give to different person or a single person?
  4. What are the penalties if cash given or taken in a day from a single person or different person?
  5. How much cash one can receive against a single invoice or different invoice in a day or in a year from a single or different person?

Under Income Tax Different sections of IT ACT which prohibits dealing in cash transactions or limits the value of cash transactions.

  • Section 269ST
  • Section 40A(3)
  • Section 269SS
  • Section 269T

These sections define the value of cash transactions that are allowed as per income tax Act. Remember there is no constitutional ban on dealing in cash, only thing is that the income tax department assesses cash transactions in different manner putting penalties on cash transaction done.

As per Section 269ST, any person who enters into a transaction of Rs.2 Lakh or above in cash, will be liable to a penalty of an amount equivalent to the amount of transaction.

For example

If you buy an expensive watch for cash worth Rs.5 Lakh, it is the shopkeeper who receives payment in contravention of section 269ST will have to pay the tax (penalty) of Rs.5 Lakh. So here the tax rate is 100%.

Though this new section on cash Transaction limit sounds simple, we need to go through it in details, as I believe that this may have quite an impact on our daily financial lives.

2. What does section 269ST say ?

With effect from 1st April, 2017, no person shall receive an amount of Rs.2 Lakh or more;

  1. In aggregate from a person in a day (or)
  2. In respect of a single transaction (or)
  3. In respect of transactions relating to one event or occasion from a person.

The new Cash transaction limit is not applicable, if a person receives the amount through an Account Payee Cheque (or) an Account Payee Bank Draft (or) through use of electronic clearing system through a bank account. (Look like, any receipts done through e-Wallets like Paytm, credit cards etc, may also be hit by this new amendment, need more clarity though)

Kindly note that Penalty under section 271D will be imposed on a person who receives a sum of Rs.2 Lakh and above in cash. The extent of penalty will be a sum equal to amount of such receipt. The said penalty shall however not be levied if the person proves that there were good and sufficient reasons for such contravention.

 

3. Section 269ST & Rs.2 Lakh cash Transaction Limit: Examples

Let us understand the above three points with examples;

Single Person

Cash receipt of Rs.2 Lakh or more, from a single person in a day is not allowed even if the amount has been paid through multiple transactions during the day which are below Rs.2 lakh.

For example

Mr.X buys a gold chain worth Rs.2 Lakh and pays the amount by cash to Mr.Y on a single day in 4 equal installments of Rs.50,000 each. As Mr.Y accepted cash worth Rs.2 lakh from a single person and in a single day, section 269ST is applicable in this case. Mr.Y has to pay a penalty of Rs.2 Lakh.

Single Transaction

Cash receipt of Rs.2 Lakh or more which are related to a single transaction are prohibited.

For example

Mr.A goes through a medical surgery and the hospital charges him a bill of Rs.4 Lakh. Mr.A clears the bill in 4 installments if Rs.1 lakh each on four different dates. Here, the cash receipt got by hospital are less than Rs.2 Lakh and have been received on different dates.

Whether this transaction violates section 269ST? – yes. Hospital has to pay the penalty. Because, they received the payments with respect to single bill/transaction. So, spitting of payments over several days is prohibited.

Single Event/Occasion

Cash transaction or cash receipts related to a single event or occasion, cannot be more than Rs.2 Lakh.

For Example

X gets married to Y. On their wedding occasion, their relatives gifted Cash amount worth Rs.10 Lakh on different dates. Even if we assume that each person has gifted cash worth less than Rs.2 lakh, are these receipts come under the purview of Section 269ST? Is penalty applicable?

Yes, penalty can be levied. Here, marriage is a ‘single occasion’ and cash gift worth Rs.2 Lakh or more can not be received from relatives and other person.

4. Other Important Points

* Based on interpretation of section 269 ST, payment modes like bearer cheque and self-cheque will also be considered on par with Cash based transactions only.

* It has been clearly stated that penalty (if any) is chargeable to an individual who violates section 269ST, even if you do not have PAN and/or is not a tax assesse.

* The restriction of receipt of money in cash of Rs.2 Lakh or above in cash is applicable irrespective of whether it is for personal/business purpose, capital or revenue in nature, tax-free or taxable income.

* Kindly note that the payer of money is not liable to pay any penalty. It is the receiver of cash who has to bear the penalty under section 271DA.

* Donations in cash exceeding Rs.2,000 are not permitted (Donations can be claimed under section 80G)

* Premiums on Health insurance policies paid in cash cannot be claimed as deduction under section 80D.

* Loans or Deposits cannot be repaid in cash in excess of Rs.20,000 or more.

*Payment of above Rs.10,000 per person, cannot be made for any business payment towards any expenses (or) purchase of capital asset.

* One should not accept a loan or deposit or sale consideration of immovable assets in cash in excess of Rs.20,000.

5. Restriction on capital Expenditure for business in cash above Rs.10,000 (Section 32 of the income Tax Act, 1961)

Where an assessee incurs any expenditure for acquisition of a depreciable asset in respect of which a payment ( or aggregate of payment made to a person in a day ), otherwise than by an account payees cheque/draft or use of electronic clearing system through a bank account, exceeds Rs.10,000. Such a payment shall not be eligible for normal/additional depreciation.

 

6.Reduction in the limit of Cash Payment to Rs.10,000 in a Day (Section 40A (3) & 40A(3A) of the Income Tax Act, 1961)

The monetary limit on revenue expenditure in cash has been reduced from Rs.20,000 to Rs.10,000 (there is no change in the monetary limit pertaining to cash payment upto Rs.35000 to transport Contractors). Few exceptions are also provided in Rule 6DD of the Income Tax Rules. Consequently, any expenditure in respect of which payment (or aggregate of payment made to a person in a day), otherwise than by an account payee cheque/ draft/use of electronic clearing system through a bank account, exceeds Rs.10,000, no deduction shall be allowed in respect of such payment under sections 30 to 37 of Income Tax Act, 1961.

 

7.Conclusion

As a business owner or as an economic soldier we should try to avoid cash transactions. Cash is the main source for bribes at lower level of bureaucracy. The best we can do is to minimize cash transactions.