GST Council to provide clarity on TCS liability for ONDC

On July 11, the GST Council is expected to provide clarification regarding the Tax Collected at Source (TCS) liability of suppliers involved in e-commerce trading through the Open Network Digital Commerce (ONDC) when multiple operators are engaged in a transaction. The ONDC, initiated by the Department for Promotion of Industry and Internal Trade (DPIIT), aims to establish open, unbundled, and interoperable networks to facilitate digital commerce. However, there is currently no clear guidance on who should bear the responsibility for TCS compliance under the GST laws.

According to the Goods and Services Tax (GST) law, every e-commerce operator is required to collect TCS at a rate of 1 percent of the taxable value of goods or services sold through its platform.

According to sources, the Law Committee, which includes tax officers from both the central and state governments, has suggested to the GST Council that when multiple e-commerce operators (ECOs) participate in a single transaction through the ECO platform, the TCS compliance should be undertaken by the supplier-side, responsible for releasing the payment to the supplier.

The ONDC operates in two models: the inventory model and the marketplace model.

In the inventory model, when a buyer initiates an order through an e-commerce platform, the platform subsequently proceeds to remunerate the supplier for the goods or services. In this scenario, the e-commerce platform deducts the TCS while making the payment to the seller.

The confusion arises in the scenario of the marketplace model, where a single transaction involves the participation of two intermediaries. Here, a buyer places an order on an e-commerce platform (buyer app), which sources the goods or services from another e-commerce entity (seller app). the seller app acquires the goods directly from the designated supplier.

Due to the involvement of multiple entities, the DPIIT has sought clarity on whether the buyer e-commerce operator or the seller e-commerce company should be responsible for deducting the Tax Collected at Source (TCS).

According to sources, in this situation, it is indicated that the seller app should deduct the Tax Collected at Source (TCS) when making the payment to the supplier. A clarification on this matter is expected to be issued by the GST Council on Tuesday.

Established on December 31, 2021, the ONDC is a Section 8 company created as an initiative of the DPIIT. It aims to provide a facilitative model that enables small retailers to leverage digital commerce. The ONDC is not an application, platform, intermediary, or software, but rather a set of specifications designed to promote open and interoperable networks.

Last year, the GST Council waived the mandatory registration requirement for suppliers to e-commerce platforms for intra-state supplies if the supplier’s annual turnover is below the GST registration threshold, which is Rs 40 lakh for goods and Rs 20 lakh for services. This provision will be effective from October 1.

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