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.
What is TDS and TCS in GST?
Let’s study the basics of TDS deductions under the GST Act firstly.
Who deducts TDS under GST?
- All Governmental agencies.
- Central or State Government establishments and Local Authorities.
- Societies under the government or local authority and those registered under the Societies Registration Act, 1860.
- Public sector undertakings.
- Categories of persons notified by the Government.
- Boards and authorities are set up through proper legislation or where the government owns more than 51% equity.
What is the TDS rate deducted under GST?
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.
TDS Impact on Government civil contractors:
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 in GST:
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.
Who is liable to collect TCS?
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
- Unregistered clubs and hotel accommodation on the platform.
- Radio-a-taxi, motorcycle or cab for passenger transportation.
- Unregistered housekeeping services like carpentry, salons, plumbing, etc.
TCS rate under GST:
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.
- E-commerce operators must register under GST as they are liable to collect TCS on GST, even when their suppliers have not crossed the GST registration threshold limit.
- The suppliers, in turn, have to mandatorily register for Goods and Services Tax Identification Number (GSTIN). Registration is necessary to collect the TCS amounts deducted as Input Tax Credit (ITC) to their respective electronic ledgers or claim refunds of the TCS/TDS amounts from the Income Tax authorities.
- The exceptions are mentioned in Section 9(5) of GST Act, where they do not need to register for GST if their turnover does not exceed Rs 20 lakhs or the threshold for GST registration of Rs 40 lakhs.
- Furthermore, e-commerce platforms have to register for GST in every state they supply goods and services.
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:
- Central Government in case of CGST (CentralTerritory Goods and Services Tax) and UGST (Union Territory Goods and Services Tax)
- The State Government in case of SGST (State Territory Goods and Services Tax).
TCS impact on the e-Commerce Sector:
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.
Benefits of TCS, TDS and GST:
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:
- TDS and TCS under GST strengthen compliance in the unorganised sectors like construction and on popular e-commerce platforms.
- Tax evaders under the previous regime have to avail GST registration to claim Input Tax Credit mandatorily and the amounts deducted as TCS or TDS.
- Suppliers and deductees benefit as their electronic ledgers automatically reflect these TDS and TCS in GST deductions when the deductor files the GST returns.
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.
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