Technological advancements, improved connectivity, and internet access across the country have helped develop the e-commerce industry in India. The increased demand for online goods and services has provided greater opportunities for sellers, startups, and small companies. Along with this are the associated compliance obligations under the goods and service tax (GST) and income tax that e-commerce operators must be aware of. Often, businesses risk losing tax credits due to lack of regular reconciliation between the returns and the books of accounts. This further leads to tax scrutiny and audits, as well as considerable losses to businesses. Therefore, regular TCS reconciliation is crucial for businesses to avoid losses and stay compliant. Here we discuss the process of reconciliation, its importance, and its role in optimizing tax credits.
Tax collection at source (TCS) under GST
The specific provisions for e-commerce under GST include registration, tax collection at source, payment of tax, and filing of statutory returns within the due date. Tax collection at source under GST for e-commerce operators was introduced to check tax evasion and ensure transparency in the system.
Tax collection at source by an e-commerce operator
Section 52 of the CGST Act states that every e-commerce operator should collect tax at 1% on the net value of the taxable supplies made through them, where the consideration for the supplies is collected by them. This amount should be paid into the government account by the operator within the tenth of the following month, along with a statement electronically containing details of outward supplies of goods and services, or both, done through them and the amount of tax collected on the supplies. The e-commerce operator is required to furnish a return in form GSTR-8 by the 10th of the following month. The details furnished in GSTR-8 are made available electronically to each of the suppliers in Part C of Form GSTR-2A after the due date of filing the GSTR-8 by the e-commerce operator. The registered sellers are entitled to the full credit of the TCS deducted by the e-commerce operators. To avail of this credit, Form GSTR-2A has a vital role to play.
What is GSTR-2A?
GSTR-2A is an important return for an e-commerce seller. For a supplier who sells goods or services, or both, through an e-commerce operator or platform, the details reflecting in GSTR-2A are crucial because his claim of the correct input tax credit of the tax collected at source by the e-commerce operator depends on the invoice details uploaded in return. In GSTR-2A, the details get auto-populated based on the information supplied by the e-commerce operators in the GSTR-8 return filed by him. The details get auto-populated in the return GSTR-2A of the seller after GSTR-8 is filed by the e-commerce operator. It includes details of the purchase, credit notes, TCS credit, etc.
Matching the details of supplies
The details of supplies, including the value of supplies, submitted by the e-commerce operators in their statements will be matched with the details of supplies submitted by the suppliers in their returns at the GST level. If there is any discrepancy in the value of supplies, the same would be communicated to both the e-commerce operator and the supplier by the GST authorities. If the discrepancy in value is not rectified within the given time, then the amount would be added to the output tax liability of the particular supplier. The supplier will then have to pay the differential amount of the output tax along with interest. Therefore, it is very important for e-commerce operators to file the details correctly in their GSTR-8 returns and for sellers to get the discrepancies set right before filing the annual return.
Also read: Filing Frequency And Due Dates For GSTR-8
TCS reconciliation with GSTR-2A
Reconciliation plays a vital role in obtaining the correct input tax credit for e-commerce suppliers. Failing to do so can lead to huge ITC losses, scrutiny notices from the tax authorities, and, in some cases, even suspension of GST registration. So how is this reconciliation done? Let us delve into the process in detail:
The credits of the tax collected at source by the e-commerce operator will be available in the electronic cash ledger of the supplier only after the supplier matches and reconciles his supplies and accepts the details in GSTR-2A. The tax credit available for the supplier is dependent on the invoices in GSTR-2A. This form is generated in real time until the e-commerce operator files the GSTR-8. Rectifications to this return can be done until it is filed. Once the return is filed, it cannot be modified.
The seller can reconcile the date with his returns, inform the e-commerce operator in case of any discrepancies, and get the rectification done before claiming input tax credit in his return. This helps to avoid errors in claiming input tax credit and later receiving notices from the tax authorities. So, reviewing and reconciling the details of all the e-commerce transactions with the records maintained at his end regularly helps the seller claim the correct tax credit. Therefore, it is vital for the supplier to maintain proper records of all e-commerce transactions and conduct regular reconciliations at his end.
Section 206C (1H) of Income Tax Act, 1961
Sub-section (1H) was inserted in Section 206C of the Income Tax Act, 1961, with effect from October 1, 2020, that deals with TCS collection during the sale of goods.
As per this sub-section, a person who is responsible for paying any amount as consideration for the sale of goods when the value of the sale is more than 50 lakhs and the aggregate turnover of the business exceeds 10 crore rupees in the previous year is required to deduct tax at the rate of 0.1% on the goods. The condition is that the goods are not used for exports or for personal consumption, provided to the government or local authority, in manufacturing, processing, or production, and not for trading purposes, the sale of motor vehicles, or foreign remittance.
Important points to consider regarding sub-section 1(H) of Section 206C
- TCS is applicable on the sale of goods for which consideration was received on or after October 1, 2020, and shall not apply for sale consideration received before October 1, 2020.
- Tax must be collected by the person carrying on business whose total sales and gross receipts exceed Rs. 10 crore in the preceding financial year.
- It is mandatory that the business be carried on in the preceding financial year. Businesses incorporated in the current year are not liable for TCS under this section. 2019-20 is the first previous financial year to check the applicability.
- As per Section 206CC, any person liable to pay TCS must provide their PAN to the person responsible for collecting the tax. If he does not provide PAN, tax will be collected at twice the rate specified in the corresponding provisions of the act, or at the rate of 5%, whichever is higher.
- This section is not applicable in certain specific cases listed in the act. IT Act.
What is Form 27EQ?
As per Section 206C of the IT Act of 1961, the seller must collect tax from the buyer at the time of the sale of goods and remit it to the government. It is applicable to some of the goods mentioned in the table under Section 206C and only if the amount of the goods purchased exceeds 50 lakh rupees. It is collected at the time of payment by the buyer after the sale of these specified goods takes place. Therefore, it is named as tax collected at source. The collection of tax from the buyer helps in the prevention of tax evasion. Form 27EQ has to be submitted by both corporate and government collectors and deductors. There is a penalty under Section 271H of a minimum of Rs. 10,000 and a maximum of Rs. 100,000 for incorrect filing of the TCS return. Late filing of returns entails a late fee of Rs. 200 per day for the period of the delay.
TCS Reconciliation with GSTR-2A
GSTR-2A is an auto-populated return with details of goods and services purchased and the tax collected at source that is filed by the collectors in their returns in a given month. It will be generated only after the supplier files When an individual registered under GST purchases from another registered vendor, the information filed in the GSTR-1 form will automatically reflect in the GSTN portal in the GSTR-2A form. The details in GSTR-2A must be verified and reconciled by the seller. Only when all the details match can the seller avail of the input tax credit. Therefore, it is very important that accurate invoice details are entered in GSTN.
Importance of TCS reconciliation under GST
TCS reconciliation under GST is important for the following reasons:
- Reconciliation is compulsory to claim the correct ITC. When the invoice details in the GSTR-2 of the seller match with the details in the counterparty’s returns, the correct input tax credit can be claimed.
- When the vendor declares his GST liability but credit has not been availed by the purchaser in his GST returns, he may lose the ITC claim. To avoid this, reconciliation is necessary.
- Reconciliation is also necessary to avoid duplication, ensure a correct declaration, and avail the maximum input credit tax.
- Missing invoices can be identified and rectified through reconciliation. so that the accurate input tax credit can be claimed.
- Duplicate records can also be identified and rectified, thereby allowing the taxpayer to avoid claiming excess input tax credit.
- Regular reconciliation can help to avoid getting notices due to mismatches from the GST authorities.
TCS reconciliation with GSTR-2A and Form 27 EQ is important for claiming accurate input tax credit and to avoid notices, penalties, etc., and other legal consequences. It can also help taxpayers avoid losses due to transactions that are missed in the reports filed by the counterparties. As GSTR-2A is a dynamic statement, it is easier for taxpayers as well as the government to match records, compare, and ensure that the correct applicable ITC is claimed. Regular reconciliations help to rectify the errors and ensure the correct filing of annual returns. Compliance can be ensured by regular reconciliation. Seeking the help of professional tax experts with advanced software can ease the process for taxpayers to avoid losses and stay compliant.