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Writer's pictureIndrajeet Sharma

A Complete Overview of TDS and TCS under GST

A Complete Overview of TDS and TCS under GST

As of October 1, 2018, TDS and TCS are subject to the Goods and Services Tax (GST). TDS is the term for the tax that is subtracted from payments made by buyers of products or services—such as government agencies—as part of a business agreement. TCS, on the other hand, refers to the tax that the electronic commerce operator collects when a seller provides products or services via its website and the operator collects payment for such supply. In this article, we will provide a detailed overview of TDS and TCS under GST.

 

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What is TDS under GST?

The technique of collecting taxes at the point of payment itself is called Tax Deducted at Source, or TDS. Under India's Goods and Services Tax (GST) system, TDS is applied. Through the TDS system, a certain proportion of taxes is subtracted by the payer and deposited with the government. TDS under GST is only applicable in certain situations, such as when paying rent, commission, professional fees, wages, etc. TDS must be subtracted and deposited with the government by the individual making the payment. The TDS rate, which ranges from 2% to 10%, is contingent upon the type of payment. TDS returns, which include information on the TDS deducted and deposited, must be submitted with the TDS and must be deposited within a certain amount of time.


Applicability of TDS under GST

Under the GST, TDS is a crucial tool for obtaining income from a variety of sources and assists in guaranteeing the timely payment of taxes. To avoid fines, businesses must abide by the rules and regulations of TDS under GST. Certain companies and people are responsible for deducting Tax Deducted at Source (TDS) under the GST regime. Under GST, the following parties are responsible for deducting TDS: 


  • A division or organisation within the central government or state governments

  • Governmental agencies

  • Local authorities

  • Public sector undertakings

  • Individuals or groups of individuals as advised by the government

  • Authorities, boards, or bodies established by the government, a State Legislature, or Parliament that have a 51 percent equity (control) ownership.

  • Societies created and registered under the Societies Registration Act, 1860, by the Central Government, any State Government, or a Local Authority


Rate, Limit, & Timelines for Deduction of TDS under GST

According to the GST laws, payments made to the supplier of taxable goods or services are subject to a 2% TDS rate, which is made up of 1% CGST, 1% SGST, or 2% IGST. When the total amount of supplies under a contract exceeds ₹ 2.5 lakhs, the person or organisation is in charge of withholding TDS. By the tenth day of the next month, the entity in charge of deduction must submit the TDS payment using form GSTR-7. For example, if on March 5, 2021, Department 'X' of the Central Government deducts TDS at a rate of 2% from 'Y', then 'Y' has to make the payment by April 10, 2021.


Registration as a TDS Deduction under GST

A properly signed application in the Form GST REG 07 can be submitted electronically to register a TDS deductor. These individuals will enter their TAN in the registration application instead of their PAN. A Tax Deduction Account Number (TAN) must be obtained under the Income Tax Act. The competent tax official will then process and approve the applicant's registration application, after which the registration certificate with the number will be issued.


Steps for Filing TDS under GST Online

The online TDS application method is easy to use and understand under GST. You can navigate the process with the help of the below steps: 


Step 1: You must first register for GST to apply for TDS online under GST. You can complete the easy registration process online. 


Step 2: You will be issued a unique number known as a GST Identification Number (GSTIN) upon completing the GST registration process. 


Step 3: Subtracting TDS from the money paid is the next step. The TDS rate varies based on the type of payment, ranging from 2% to 10%. 


Step 4: The government must receive the TDS after it has been deducted. Through the GST portal, you can make an online TDS deposit. 


Step 5: Submit a TDS return following the TDS deposit.


TDS under GST: Impact on Government Civil Contractors

Across the nation, the Indian government awards approximately 10,000 civil contracts annually on average. The average contract value for building or maintaining national highways exceeds Rs. 100 crores. Large construction companies purchase these contracts, which are then subcontracted to smaller businesses, which are then subcontracted to still another small business. The GST, specifically the TDS liability, will cause issues for this loop. To guarantee tax compliance by the contractors and all other subcontractors, the government would have to deduct TDS from the contractor. Many small labour and civil contractors do not currently comply with tax laws. It will be necessary for them to register under GST and comply with tax laws. 


Illustration: After A Ltd. wins a ₹ 20 lakh government contract to repair an 800-meter road, the company may subcontract the work to B Ltd., which then subcontracts it to C & Associates, a smaller company. C & Associates might not have bothered with service tax and VAT registration under the old taxation structure. On the other hand, registration becomes necessary under GST to receive Input Tax Credit (ITC). To promote tax compliance in unorganised industries like the construction industry, the TDS provision under GST (Section 51 of the CGST Act) was introduced. To ensure tax compliance across the supply chain and to promote openness in the execution of government contracts, the TDS rule is essential.


What is TCS under GST?

Under the Goods and Services Tax (GST) system in India, tax is collected at the time of sale using the Tax Collected at Source (TCS) technique. TCS is a system whereby the seller of goods or services collects and deposits a predetermined percentage of tax with the government. Only some situations, such as the sale of alcohol, scrap, minerals, etc., are covered by TCS under GST. The onus of gathering TCS and remitting it to the government rests on the seller of the products or services. The TCS rate is a variable that ranges from 0.1% to 5%, based on the type of sale. TCS must be placed within a predetermined window of time and be accompanied by a TCS return that includes information about the TCS that was gathered and deposited.


Applicability of TCS under GST

E-commerce aggregators are designated as the primary TCS deductors under GST, and they are in charge of deducting and depositing TCS at a rate of 2% from each transaction. The CGST law has added Section 52, which requires all e-commerce aggregators to include TCS in GST. Online aggregators like Flipkart, Snapdeal, Amazon, and others now face higher compliance and administration costs as a result of this noteworthy change. By the tenth day of the following month, they would have to deposit the tax that was withheld in form GSTR-8


Rates, Limits, and Timelines for TCS under GST

The GST law assigns e-commerce aggregators the responsibility of withholding and depositing tax at the rate of 0.5% from each transaction. Dealers and traders who offer products or services online will receive payment after a 0.5% tax deduction (either 0.5% IGST or 0.5% CGST plus 0.25% SGST). The CGST Notification No. 15/2024 and the IGST Notification No. 01/2024, both dated July 10, 2024, provided notice of the revised rate. Even if their turnover is below the threshold turnover limit established for GST registration, all traders or dealers selling goods or services online will need to register under GST to receive the tax withheld by e-commerce operators.


Rules for TCS Deductors under GST

There are regulations you must follow in the realm of GST if you are a person who deducts TCS (Tax Collected at Source), particularly if you operate an online store. These are: 

  • You must register for GST if you are the e-commerce platform owner or if you sell goods online. It is essential.


  • Make sure to pay any TCS that you deduct by the tenth day of the month after the date of collection. Remember to disclose it in GSTR 8 as well.


  • Each year, by December 31st, you must submit a report in the appropriate format. You can correct any errors you make up until September, when the fiscal year ends, when you file your return.


  • The data you entered into GSTR 8? Yes, it is electronically communicated in GSTR 2A with your suppliers following the GSTR 8 filing date.


  • You have fifteen working days to provide information about what you sold and what's in your warehouse to any official who requests it, usually no lower than a Deputy Commissioner. Just so you know, failing to do so may result in fines of up to INR 25,000.


TCS on GST: Impact on E-commerce Retailers

To incorporate the TCS in GST, online retailers such as Amazon, Flipkart, Snapdeal, and others had to modify their online payment procedures and finance or administrative departments. In each state where they conduct business, they have to register under the GST. For these provisions to be smoothly implemented in day-to-day business operations, the ERP systems must be well connected. But, to use these e-commerce platforms, e-tailers or merchants are required to register under GST. Additionally, until these sellers complete their returns and recoup the excess taxes paid, the working capital that they are receiving through an e-commerce operator would be frozen.


Benefits of TDS and TCS under GST

There are many advantages to TDS and TCS under GST. The government adopted both TDS and TCS under GST to tighten regulations on tax evaders. Once the deductor files their returns through the TDS system, a deductee or supplier will automatically see a reflection in their computerised ledger. The deductee may utilise the credit for this tax deducted at his convenience to pay other taxes by claiming it in his electronic cash ledger. TDS plays a vital role in preventing fraud and assisting in forcing unorganised industries to adhere to tax laws. Similar to this, TCS in GST oversees online retailers, monitors transactions, and guarantees that taxes are deposited with the government on time.


Conclusion

To sum up, TDS and TCS under GST are crucial parts of the GST system that work to ensure that taxes are paid on time and to collect income from a variety of sources. The online application of TDS under GST is a clear-cut process, but companies need to make sure they follow the right steps to stay out of trouble. Businesses can apply TDS online and complete their GST responsibilities with ease by following the above-described methods. 


FAQ

Q1. When are TDS and TCS both applicable?

When the total value of a service or the total consideration for delivery exceeds predetermined levels, TDS and TCS are applicable under GST. TCS is applicable to e-commerce operators, whereas TDS is applicable to government entities or designated individuals in the supply chain. 


Q2. What is the TDS rate under GST?

Under the GST regime, the TDS rate is 2% (1% CGST + 1% SGST or 2% IGST). When paying suppliers more than a set amount, certain individuals—usually government departments—deduct this amount to ensure supply chain tax compliance.


Q3. How can a deductee claim a TDS benefit under GST?

The tax deducted and shown in the deductor's returns must be credited to the deductee's electronic cash ledger. The electronic cash ledger will automatically reflect any amount that is recorded in GSTR 7 and deducted as TDS. If the deductee claims the amount in the electronic cash ledger, a refund to the deductor is not feasible. Nevertheless, the Act's refund provisions may apply to a deductee's claim for a tax refund. It is practically impossible to assert that the deductor made an incorrect TDS deduction.


Q4. What is TCS under GST exempt?

Petroleum, diesel, and alcoholic beverages are among the products and services for which TCS is free from GST. These exemptions, which concentrate on particular industries where TCS would not be applicable, are intended to simplify the tax collection procedure.


Q5. What is TCS in the GST limit?

E-commerce businesses are subject to the TCS limit under GST and are required to collect TCS at the rate of 1% on the net taxable value of goods or services. This establishes a barrier for TCS implementation and is applicable when the total sales value in a financial year above ₹ 2.5 lakhs.


Q6. Who will collect TCS under GST?

Under GST, e-commerce businesses are in charge of collecting TCS. 1% TCS is collected by websites such as Amazon, Flipkart, and others when products or services are sold over their platforms. In the e-commerce industry, this approach guarantees systematic tax collection and compliance.


Q7. How can a supplier claim a TCS benefit under GST?

The provider who supplied the goods or services through the operator will have the tax collected by the operator put into their electronic cash ledger. The supplier can then use their electronic cash ledger to obtain credit for the tax amount that was collected and recorded in the operator's return.


Q8. Who has to pay the additional output TCS under GST if there is a discrepancy?

The information provided by each operator in the statements about their supplies, including the value of those supplies, will be compared to the information provided by each of these suppliers in their returns. Should there be any disparity in the worth of the commodities, it would be conveyed to them both. Such a difference in value will be added to the supplier's output tax liability if it is not corrected within the allotted time. The provider will be responsible for paying interest and the difference in output tax.


Q9. What is the recent update in TDS and TCS under GST?

According to the recent update on July 10, 2024, the CBIC published CGST Notification No. 12/2024, which changed the GSTR-7 return format to enable invoice-level reporting. The specifics of the invoice or document, the amount paid to the deductee responsible for TDS, the amount of TDS, the transaction value, and the IGST/CGST/SGST must all be reported by taxpayers.



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