TCS on Cancelled and Returned Orders: Fixing the GSTR-1 vs TCS Gap

An order cancelled before it ships was never a sale, so no TCS should sit on it. A returned order is different: it was a sale, and it comes off the marketplace's net figure in the month the goods come back. Most gaps between your GSTR-1 and the TCS reported are about which month a return or cancellation landed in.

How do returns and cancellations reach the TCS figure?

Under section 52 of the CGST Act, a marketplace collects tax at source on the "net value of taxable supplies". The Act defines that as the month's taxable sales through the operator, reduced by the taxable sales returned during the same month. Notification 15/2024-Central Tax cut the central share to 0.25% from 10 July 2024, which with the matching state share gives 0.5% in all.

Every month the marketplace files GSTR-8 by the 10th. For each seller GSTIN it enters two numbers, the gross value of supplies and the value of supplies returned, and the portal works out the net amount. You see that row under TDS and TCS credit received on your own login.

So where does a cancelled order go? Nowhere, if it was cancelled before an invoice was raised. It is not a supply, so it should not be in the marketplace's gross figure or in your sales. Our guide to sales returns in GSTR-1 covers how each kind of return goes into Table 7.

What if returns are more than sales in a month?

This happens to sellers after a big sale, when November returns outrun November orders. In GSTR-1 a negative B2C line is allowed. GSTR-8 is not so flexible: the portal manual says negative values cannot be declared in its supply table. The marketplace cannot report a negative net figure for you, so the extra returns have to be adjusted some other way, usually in a later month. Expect your figures and the marketplace's to disagree for that month, and check that the two months taken together agree.

How to close the gap, step by step

1. Download the month's sales report from each marketplace and separate three kinds of row: shipped orders, returns and RTO, and cancellations.
2. Remove cancellations that never shipped. They should not be in your taxable value at all.
3. Work out your net figure: shipped value less returns processed in that month, before GST.
4. Open the marketplace's row. On the GST portal, go to Services, Returns, TDS and TCS credit received, choose the month and Prepare Online.
5. Compare net with net. Check also that the TCS is 0.5% of the marketplace's net amount.
6. Decide. If your own figure was wrong, correct GSTR-1. If the gap is timing, accept. If the marketplace counted an order that was cancelled before dispatch, reject the row with a remark and raise a ticket with seller support.
7. File the statement so the accepted TCS moves to your electronic cash ledger. The steps are in how to claim TCS credit.
8. Write the reason for any gap on a monthly sheet, with order numbers.

A worked example

Kavya sells kurtas on one marketplace. In September her report shows:

Her first draft of GSTR-1 took the whole order file, cancellations included, and showed Rs 4,70,000. The marketplace row showed Rs 4,40,000 and Rs 2,200 of TCS. Who was wrong? She was. At 5% GST she would have paid Rs 1,500 of tax on goods that never left her shelf. She removed the cancelled rows, filed GSTR-1 at Rs 4,40,000 and accepted the row.

In October the marketplace row showed Rs 50,000 more than her figure. Her credit notes for that amount were dated 30 September, but the marketplace counted the returns on 2 October. Her September and October together matched the marketplace's two months exactly. Timing, so she accepted both rows and noted the order numbers.

Is the TCS on a returned order lost?

No. The TCS collected in the month of the sale reaches your cash ledger once you accept and file that month. When the return comes in, the marketplace's net figure in the later month is lower, so it collects less then. Over the two months you have paid TCS only on what you kept as sales. There is nothing to give back.

What is at risk is unexplained gaps. Section 52 provides for the marketplace's figures to be matched with yours. Where the marketplace's value is higher and the gap is not fixed, the difference can be added to your output tax with interest. Our guide to GSTR-8 vs GSTR-1 mismatches covers the other causes.

The mistake sellers usually make

The first is filing GSTR-1 from the order file instead of the tax report. Order files carry cancelled orders. Marketplace tax reports mark them, and you need the rows that say shipped.

The second is rejecting a row because one month is off. Rejection sends the whole row back, and the credit waits until the marketplace amends it. Reject only for a figure that is wrong, not one that is early or late.

The third is chasing small gaps for weeks. Returns are a large share of online orders, a theme our Seller Intelligence report comes back to often, so some timing difference is normal. A sheet that explains the gap is enough. Get help when the gap persists for three or more months, or runs into lakhs.

Frequently asked questions

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