The Indian government recently announced that effective October 1, 2018, it will implement a Tax Collection at the Source (TCS) mechanism for purposes of the country’s goods and services tax (GST). The Tax Collection at the Source mechanism applies to e-commerce platforms doing business in India that facilitate the online sale of goods and services to consumers in India and collect the sales price for these online sellers. The e-commerce platforms are required to withhold one percent tax from the collected sales price and remit it to the Indian tax authority. In addition, e-commerce platforms subject to the tax collection at the Source mechanism are required to file separate monthly and annual returns reporting transactions subject to this requirement. The tax withheld by the e-commerce platform can be credited to the cash ledger of the online vendor selling goods and services through the platform. The tax collection at the Source mechanism is intended to ensure that all online vendors register for and comply with the Indian goods and services tax rules. Since India introduced its new goods and services tax system, the implementation of the TCS mechanism has been controversial and the Indian authorities have postponed its implementation multiple times. While the Indian tax authorities will issue detailed guidance on the tax collection at the Source mechanism in the upcoming days, e-commerce platforms and online sellers doing business in India should review the impact the new TCS mechanism will have on their operations in the country.
In addition, remote sales of online services to consumers in India have been taxable since December 1, 2016. These remote sales rules follow broadly the OECD guidelines that have now been implemented in more than 50 countries. The Indian tax authorities have recently started enforcing these rules by issuing notifications to noncompliant sellers. With the implementation of the tax collection at the Source mechanism, it is expected that the tax authorities will increase their focus on this area. For more information please contact Sandy Nicolson at 408-367-2801.