India Inc, in particular e commerce platforms such as Amazon and Flipkart, may need to prepare for withholding tax provisions in two months under the goods and services tax (GST).
The tax deducted at source (TDS) and tax collected at source (TCS) provisions had been
put on hold following petitions by industry that this would increase the compliance burden.
But with the GST regime stabilising, these provisions may be imposed from July 1, said a
senior government official.
The TDS provision mandates that notified entities have to deduct up to 1% state GST and
1% central GST on intrastate supplies of over Rs 2.5 lakh.
In the case of interstate supplies of over Rs 2.5 lakh, TDS will be 2% integrated GST. These provisions are aimed at checking tax evasion as TDS/TCS will leave a trail of transactions. In the case of e commerce companies, it means that when they make payments to suppliers for goods sold on their platforms, they have to collect 1% tax and deposit this with the government.
“The GST Council decision was to extend suspension of TDS/ TCS proposal till June 30,” said the official cited above. On June 26, 2017, days before the July 1rollout of GST, the government had deferred implementation of the provisions after industry feedback.
The Odisha state government has already issued a circular on TDS provisions that says identified deductors need to register themselves, with the likelihood of these coming into force on July 1. It asked the state tax authorities to identify deductors within their respective jurisdictions and facilitate registration. “A nodal officer should be nominated at the circle level to handle all TDS-related activities,” according to the circular, which ET has seen.
Other states are expected to follow suit. E commerce firms are likely to lobby the government against the move, reiterating that TCS provisions will add to their compliance burden and could squeeze cash flow for small and medium-sized enterprises. Although TDS / TCS can be claimed, industry is of the view that it could lead to working capital issues.
Some tax experts also cautioned against the timing as the return filing process is expected to undergo a revamp with the upcoming GST Council meeting this week is likely to approve two new forms. “It may not be the best time to introduce TDS or TCS while the whole return processes are being reworked,”
“Also, since the GST system is based on self policing with invoice-matching mechanism, there may not be a need of TDS or TCS, unless there are specific cases of tax evasion that have surfaced.”
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