Tax Collection at Source (TCS) under GST: A Complete Guide for Businesses

Since its launch in 2017, the Goods and Services Tax (GST) has brought a unified approach to indirect taxation in India. One of the lesser-known yet highly significant mechanisms introduced under GST is Tax Collection at Source (TCS). TCS was designed to regulate e-commerce transactions, bring transparency, and ensure accurate reporting of supplies made through online platforms. 

For sellers on platforms like Amazon, Flipkart, or Myntra, TCS directly affects cash flow and compliance. Similarly, e-commerce operators must ensure correct collection, deposit, and reporting of TCS to stay compliant. In this blog, we will break down what TCS under GST means, its applicability, compliance requirements, and how businesses can manage it effectively. 

What is TCS under GST? 

TCS under GST refers to the tax that e-commerce operators (ECOs) are required to collect from the consideration payable to sellers on their platforms.

Simply put: 

• If you sell goods or services on an e-commerce marketplace, the operator is legally required to deduct a small percentage of tax from your sales before crediting your payout.
  
  
• This deducted amount is then remitted to the government on your behalf.

It’s important to distinguish between TCS and TDS (Tax Deducted at Source). While TDS applies broadly across services and contracts, TCS under GST applies specifically to transactions facilitated by e-commerce operators.

This provision helps tax authorities keep track of online sales and ensures sellers disclose their true turnover.

Legal Provisions of TCS under GST

The legal framework of TCS is contained in:

• The CGST Act, 2017 requires e-commerce operators to collect tax at source under Section 52.
• Rule 67 of the CGST Rules – which details compliance procedures such as return filing.

The law mandates that every e-commerce operator registered under GST must collect TCS on the net value of taxable supplies and deposit the same with the government. This ensures that e-commerce transactions are reported transparently.

Applicability of TCS

TCS does not apply to all businesses. The liability is on e-commerce operators, not sellers.

Who must collect TCS?

• Any digital marketplace or online platform that facilitates sales of goods or services, such as Amazon, Flipkart, or food aggregators like Swiggy and Zomato.

When does TCS apply?

• TCS is applicable when:
  
  
  • A seller sells goods/services through an e-commerce operator.
    
    
  • The operator collects consideration on behalf of the seller and remits it after deducting TCS.

Exemptions:

TCS provisions do not apply in the following cases:

1. Supplies that are exempt from GST.
   
   
2. Supplies covered under the reverse charge mechanism (RCM).
   
   
3. Where the e-commerce operator is required to pay GST under Section 9(5).
   
   
4. Zero-rated exports.
   
   
5. Where the e-commerce operator does not collect any payment for a supply.

This means sellers operating offline or directly with customers are not subject to TCS, but anyone selling via e-commerce must account for it, unless falling under the above exemptions.

Rate of TCS under GST

The current rate of TCS under GST is 1% of the net taxable value of supplies made through e-commerce platforms.

• For intra-state transactions: 0.5% CGST + 0.5% SGST.
  
  
• For inter-state transactions: 1% IGST.

Example:
If a seller makes sales worth ₹1,00,000 on an e-commerce platform, and ₹10,000 worth of items are returned, then:

• Net supplies = ₹90,000
  
  
• TCS @1% = ₹900

So, the platform deducts ₹900 before releasing payment to the seller and remits this to the GST department.

Compliance Requirements for E-commerce Operators

TCS brings specific compliance obligations for e-commerce operators.

1. GST Registration
   
   
   • GST registration is mandatory for all e-commerce operators, regardless of their turnover.
     
2. Monthly TCS Returns – GSTR-8
   
   
   • Operators must file GSTR-8 by the 10th of the following month, reporting the supplies made through their platform and TCS collected.
     
3. Annual Return – Form 9B
   
   
   • A financial year-end statement must be filed by the operator by the 31st December following the end of the year.
     
4. Deposit of TCS
   
   
   • The deducted TCS must be remitted to the government by the 10th of the next month.

Penalties for Non-Compliance:‍

Failure to deposit TCS or delayed filing of returns attracts interest (18% per annum) and penalties. Notices can also be issued to defaulting operators.

Credit of TCS to Suppliers

The good news for sellers is that TCS is not an additional tax burden. It is available as credit.

• The amount deducted as TCS is reflected in the seller’s GSTR-2A.
  
  
• GSTR-3B returns allow sellers to claim this amount as Input Tax Credit (ITC).
  
  
• Input tax credits can be used to offset output tax liabilities.

This mechanism ensures transparency while keeping sellers’ tax burden neutral, though it may temporarily impact their working capital.

Challenges in Implementation

Although straightforward on paper, TCS has posed challenges:

1. Working Capital Blockage
   
   
   • Sellers, especially MSMEs, often face cash flow strain since TCS reduces their immediate payouts.
     
2. Reconciliation Burden
   
   
   • Any mismatch between GSTR-8 (filed by operators) and GSTR-2A/2B (visible to sellers) creates disputes and delays in ITC claims.
     
     
3. Technology & System Integration
   
   
   • E-commerce operators need advanced systems to track, deduct, and report TCS accurately.
     
     
4. Compliance Complexity for Small Sellers
   
   
   • Micro and small sellers often lack resources for timely reconciliation and filing, leading to dependence on consultants.

Recent Updates and Clarifications

The GST Council and CBIC have issued multiple updates to streamline TCS compliance:

• Automation in reconciliation between GSTR-8 and GSTR-2A has reduced errors.
  
  
• Initial relaxations were provided to allow sellers and platforms to adapt.
  
  
• With the adoption of e-invoicing, compliance is becoming more integrated and seamless.

How Businesses Can Manage TCS Compliance Better

For sellers and e-commerce operators alike, managing TCS efficiently is about adopting automation and timely reconciliation.

• Automated Accounts Payable (AP) solutions can help sellers reconcile TCS credits, track deductions, and avoid ITC mismatches.
  
  
• Platforms like CashFlo offer GST compliance automation that makes it easier to manage credits, vendor payments, and tax filings seamlessly.
  
  
• Finance teams can use these solutions to reduce errors, free up working capital, and stay audit-ready at all times.

Conclusion

TCS under GST is an essential mechanism to ensure transparency and accountability in India’s growing e-commerce ecosystem. While it may create cash flow and reconciliation challenges, the credit mechanism ensures sellers don’t bear additional tax burdens.

For e-commerce operators, accuracy and timeliness in compliance are non-negotiable. For sellers, proactive reconciliation and automation tools like CashFlo’s compliance solutions can turn TCS from a burden into a manageable process.

As online trade continues to expand, TCS will remain a critical part of GST compliance. Businesses that embrace technology and automation will be best placed to handle these obligations smoothly.