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The two taxes under Goods and Services Tax (GST) are Tax Deduction at Source (TDS), and Tax Collected at Source (TCS). These terms are categorised under the Income Tax Act and have a tremendous impact on the GST Act. The taxation has been effective from October 1st 2018. We can define TDS as the tax deducted when you buy services or goods and is generally deducted from bank deposits, government or institutional department payments, contract payments and more. On the other hand, TCS is the tax collected by e-commerce platforms for services and goods sold on its platform or website, where payments are digital payments.
In this article, we shall learn TDS and TCS under GST, how to claim TCS in GST, the various sections applicable for TDS and TCS payments, rates, etc., and how to get your TDS or TDS TCS refunds as a TCS credit in GST.
Let’s study the basics of TDS deductions under the GST Act firstly.
When the total value for goods or services under a contract exceeds Rs 2.5 lakhs, the person paying is liable to deduct TDS. The TDS rate notified under GST laws is a total of 2%, with 1% being Central Goods and Services Tax (CGST) and 1% being the Integrated Goods and Services Tax (IGST) or State Services and Goods Tax (SGST) on all payments on taxable services and goods made to the seller.
Such TDS amounts deducted are to be made to the GST authorities using the GSTR-7 on or before the 10th of the subsequent month. Suppose the ‘ABC’ department of the Central Government deducts the TDS from a bill to ‘Y’ at 2% on March 4th 2021, then it should make the TDS remittance to the GST authorities by April 10th 2021.
An average of 10,000 large civil contracts is granted annually by the Indian government. The average value for repair/ construction of a National Highway runs into several hundred crores. Large construction companies win these tenders, which are then sub-contracted and re sub-contracted several times. Hence, the TDS tax liability with each such contract keeps growing. Many labour and small civil contractors are not registered or tax compliant. Thus GST and TDS bring a certain amount of transparency in the operations of such large contracts. It is now imperative to mandatorily deduct the TDS amounts at source for all payments greater than Rs 2.5 lakhs which means even small civil contractors will need to register under the GST regime.
For example, M/s XYZ Ltd. won a government contract to repair an 800-m road worth Rs 20 lakhs. The company outsourced its work to M/s ABC and M/s DEF contractors, which further outsourced to smaller firms like M/s LMN Associates, a small civil contractor.
Under the previous regime, M/s LMN Associates need not have GST registration or pay Value Added Tax (VAT) and service tax. Now, M/s LMN Associates must be registered under the GST Act to claim an Input Tax Credit or ITC. Thus, TDS U/S 51 of the GST Act ensures tax compliance by the construction industry and its unorganised labour sector.
TCS or Tax Collected at Source in GST is the tax collected on behalf of the services and goods suppliers making supplies to the online platform of the operator. The tax is collected by the online e-commerce platform and is a percentage of each transaction of taxable supplies.
E-commerce platform operators who collect online payments on behalf of their services and goods suppliers like Snapdeal, Amazon, Flipkart etc., must mandatorily collect TCS. In other words, they deduct the TCS amount and then pay the suppliers of their goods and services while remitting the TCS amounts collected to the GST authorities through a GST TCS Form-8 before the 10th of the subsequent month. For example, ABC stores, a proprietary concern, sells ready-made baby garments on Snapdeal. Snapdeal, the e-commerce operator, has to deduct 1% TCS on behalf of ABC Stores.
Exceptions to the TCS provisions under Section 9(5) of the GST Act on the e-commerce platform are
The TCS rate under GST is specified under the CGST Act of 2018 under Section 52 of the GST Act. The Central Board of Indirect Taxes and Customs (CBIC) gives the TCS notification under GST. Under it, traders and dealers supplying services/goods through e-commerce platforms/operators will give TCS deductions of 1% and receive payments. The apportioning of taxes is 1% IGST or 0.5% CGST and 0.5% SGST. This means for both interstate and intrastate supplies, a total of 1% tax will be collected at the source. For interstate supplies, the TCS is 1% IGST, while intrastate supplies have 0.5 % SGST and 0.5% CGST as the tax rates for TCS in GST.
TCS GST is deducted on every transaction during the month the supply is made in and must be deposited within 10 days of the subsequent month of supply to the GST authorities.
The tax is paid in turn by the GST authorities to the:
Section 52 of the CGST law brings in TCS under GST or Tax Collected at Source for all e-commerce operators responsible under the GST law. Depositing the deducted TCS applied at 1% of every transaction is necessary for such operators. Thus, all traders and dealers on the platform selling their services or goods get their payments at less than 1% TCS. TCS is apportioned as 1% IGST or 0.5% SGST and 0.5% CGST. Aggregators like Amazon, Flipkart, Snapdeal etc., have to deposit this tax to the GST authorities by the 10th of the subsequent month in GSTR -8.
Besides increasing the cost and administrative expense of the aggregators, all dealers and traders on such platforms need to be registered to claim their TCS deductions even though they may not be over the threshold amount specified for GST registration.
Here’s an example of a TCS deduction: Mr Raj sells his ready-to-use garments on Flipkart online. He receives an order for Rs 20,000, which includes commission and tax. Assume the commission charged is Rs 250. Flipkart deducts 1% of the amount and Rs 2000/- as sales returns. The TCS deducted will hence be on Rs 18,000 or the net sales value, ie. Rs 1,800/-, as it excludes commission payable. In effect, Mr Raj only receives Rs 17,800/- and has to pay GST too. He will have to register with the GST authorities to claim the Rs 2000/- deducted on this and every further transaction on Flipkart.
From October 1st 2018, all online sellers were required to change their administration, Enterprise Resource Planning (ERP) systems and online payment systems to reflect the TCS under GST. The sellers and e-tailers on e-commerce platforms will have to register for GST compulsorily, and their working capital gets blocked till they claim the taxes paid more than their liability and file returns. Introduced U/S 51, 52 of the CGST Act, the TCS and TDS deductions have several benefits. They are:
This article has covered the basics of tax deductions of TDS and TCS under GST. GST compliance and filing of returns can be a cumbersome task for most small dealers, traders etc. Therefore, it is integral for business owners to know about the TCS in GST so that ethical work functioning can be maintained. We hope through this article, you have understood the importance of TDS and TCS in GST.
Did you know the Khatabook app can cover all your accounting needs and GST compliance issues, leaving you to concentrate on making your business profitable? To learn more about GST and TCS/TDS, try it today!
1. Who is liable to deduct TDS and TCS under GST?
Section 194Q of the 1961 I-T Act states that a buyer is liable to deduct TDS when making payments to suppliers of services and goods. Section 206C (1H) also requires TCS deductions on supplies made to the buyers. However, the two taxes cannot be deducted for the same transaction. Typically TDS in GST is deducted from payments due to civil contract payments, government payments, bank interest payments etc. In contrast, TCS in GST is deducted from supplier’s payments by e-commerce platforms required to collect services/ goods sold on their platforms and collected by them.
2. If TDS is deducted, will TCS deduction also apply?
TCS is a tax collected by sellers from buyers while selling services and goods for them. Example e-commerce platforms collect TCS from buyers of their platform services when selling goods like metal scrap, timber, etc. or services on their platform and collecting electronically for them. The TDS deduction is deducted on rents, salaries, professional fees, commissions, brokerage etc.
3. How do you deposit TCS or TDS?
If depositing TDS monthly, you have to use a TDS slip and select the TDS/TCS payment type or payable by the taxpayer. Reflect the payment as a demand if the Assessing Officer raises the demand. Ensure such payments are within the due date to avoid penalties and interest leviable for failure to remit the TDS/TCS.
4. Is the TDS challan used for TCS payments?
You can use the TDS challan for TDS or TCS payments.
5. When can I get a TDS refund?
You are eligible for a TDS Refund if the net tax liability owed to the government is less than the amounts already deducted as TDS. For example, when you file your IT returns and have a nil tax liability, the amount deducted as TDS gets refunded.
6. Do I need a TAN to deposit TDS on buying a home?
If buying immovable property, you need not get a Tax Deduction Account Number. Just use your Permanent Account Number (PAN) and the TDS challan to make such payments.
7. Who is eligible for TDS payments?
All specified payments under the Income Tax Act must deduct TDS except when the payment is from an individual or HUF whose books do not require an audit.
8. Will TCS deductions be refunded?
Yes, the TCS amounts can be claimed as a refund in your bank account or as an electronic ledger credit to your GST account.
9. How do I pass TCS entries in the accounting books?
Maintain a separate ledger under the “Current Liabilities” group called “TCS Payable on Goods Sales” to help reconcile the TCS amounts due to the government and collected by you. Deposit the TCS collected within the 10th of the subsequent month to avoid penalties and interest being levied.
10. How does TCS get treated in GST?
U/S 52 of the CGST Act, TCS is charged as 1% of the net taxable supplies. TCS is typically levied in GST on e-commerce platforms.
11. How do I claim TCS under GST?
The TCS and TDS credits are received as ITC or Input Tax Credits in the electronic ledgers of the taxpayer. Log in to the GST portal and your GST account to check your electronic ledger from time to time using User ID and Password.
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