Goods and Services Tax (GST) is an indirect tax levied by the government of India on the supply of goods and services. TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) are two important constituents of GST, through which revenue is collected from various sources, and on-time payment of taxes is ensured. In this article, we will talk about TDS and TCS under GST, their differences.
Advantages of TDS and TCS Under GST
The inclusion of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) in GST offers multiple benefits. The government introduced it to increase regulation against tax evaders. Sections 51 and 52 of the CGST Act deal with TDS and TCS provisions under GST.
For deducted or suppliers, TDS has the advantage that once the diductor files the returns, it gets automatically reflected in the supplier’s electronic ledger. This makes it easy for the deducted to claim credit in their electronic cash ledger for the deducted tax and use the same conveniently for other tax payments.
TDS has the greater effect of bringing unorganized sectors under the ambit of taxation laws, thus averting tax evasion.
Similarly, TCS in GST acts as a regulatory measure for online sellers. It ensures that transactions are monitored and taxes are deposited systematically with the government over time. This dual effect of TDS and TCS strengthens tax enforcement, brings transparency, builds compliance, and credibility into the GST regime.
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TDS vs TCS Under GST
TDS and TCS under GST are two different tax collection methods. The key differences between TDS and TCS are as follows:
TDS is deducted at the time of payment, and TCS is collected at the time of sale.
TDS is deducted by the person making the payment, while TCS is collected by the seller of goods or services.
TDS is applicable in specific cases, like the payment of salary, commission, professional fees, rent, etc. TCS is applicable in specific cases like the sale of alcohol, scrap, minerals, etc.
What is TDS under GST?
Tax Deducted at Source, or TDS, is a method of collecting tax at the source of the payment itself. TDS is applicable under the GST regime of India. TDS is a mechanism in which a specified percentage of tax is deducted by the person making the payment and deposited with the government. TDS under GST is applicable only in specific cases, like payment of salary, commission, professional fees, rent, etc.
The responsibility of deduction and depositing Tax Deducted at Source (TDS) lies with the payer. The rates of TDS differ from one type of payment to another, such as 2%, 5%, and 10%. Besides, TDS must be deposited within the time frame, which is a prerequisite with the TDS return by filing the details of deductions and deposits. TDS under GST means tax paid in advance, and thus it is an important method of revenue collection. TDS compliance is necessary for businesses to avoid penalties.
Who is Liable to Deduct TDS Under GST?
The person responsible for deducting the tax (TDS) under the GST is the person and entities who fulfill the set conditions as provided in the GST law. The parties that can deduct TDS under GST include:
A department or an establishment of the Central Government or State Government.
Local authorities.
Governmental agencies.
Persons or categories of persons as notified by the Government.
Public sector undertakings.
Societies established by the Central or any State Government or a Local Authority, registered under the Societies Registration Act, 1860.
Authorities, boards, or bodies set up by Parliament or a State Legislature or by a government, with 51% equity (control) owned by the government.
How to Apply TDS Online Under GST?
TDS can be applied online under GST following the steps mentioned below:
Register for GST: To apply for TDS online under GST, you first need to register for GST. The procedure for registration is easy, and you can do it online.
Get GSTIN: Once you have successfully registered for GST, you will be assigned a GST Identification Number (GSTIN), which is a unique number assigned to you.
Deduction of TDS: Now, deduct the TDS from the payment made. The TDS rate varies from 2% to 10% depending on the nature of the payment.
Depositing TDS: Now, the TDS deducted needs to be deposited with the government. You can deposit TDS online via the GST Portal.
Filing TDS Return: Now, after depositing the TDS, you must file the TDS return. Filing of the TDS return is done quarterly, and you need to specify the details of TDS deducted and deposited.
What is the Rate of TDS to Be Deducted Under GST?
The GST laws mandate the TDS rate of 2% as comprising 1% CGST and 1% SGST or 2% IGST applicable to payments made to the provider of the taxable goods or services.
Is there Any Limit for Deducting TDS Under?
If the value of supply throughout the contract exceeds ₹ 2.5 lakhs, then the diductor liable will be the person or the entity.
What is the Time Limit for Payment of TDS?
The diductor shall pay the TDS payment through form GSTR-7 before the 10th of the next month. For example, if Department ‘X’ of the Central Government deducts TDS @ 2% from ‘Y’ on 5th March 2021, then he has to make a payment before 10th April, 2021.
Impact of TDS Under GST on Government Civil Contractors
Over 10,000 civil contracts are awarded by the government every year in India, and the value of the contracts for constructing/repairing national highways is over ₹ 100 crores. These contracts involve a long chain in the sense that large construction companies are awarded the contracts. These companies further subcontract it to small firms, which even further sub-subcontract to smaller entities. This sort of long loop is challenged under GST, especially in respect of liability under TDS.
The government is required to deduct TDS from the main contractor to ensure tax compliance by the contractor and his sub-contractors. Presently, most of the small civil and labour contractors do not comply with the tax compliance requirements. Under GST, they compulsorily have to obtain registration and comply with the tax compliance requirement.
For example, if M/s ABC Ltd. is awarded a government contract for repairing a road of 800 meters for ₹ 10 lakhs, then M/s ABC Ltd. may assign the work to M/s XYZ Ltd. M/s XYZ Ltd. may further subcontract it to a small entity like M/s DEF & Associates.
Under the previous taxation system, M/s DEF & Associates might not have cared to get service tax and VAT registration. However, under GST, registration becomes necessary to claim ITC. The introduction of the TDS provision under GST—for example, Section 51 of the CGST Act—has been envisioned to promote tax compliance in the unorganized sectors like the construction industry.
The TDS rule is instrumental in advancing transparency with regard to the execution of government contracts and tax compliance along the supply chain.
What is TCS under GST?
Tax Collected at Source, or TCS under GST, is a means of collecting tax at the time of sale under the GST regime. TCS is one of the methods in which a certain percentage of tax is withheld at the time of sale of goods or services by the seller, and the same shall be deposited with the government. It will be levied only in specified cases, for example, the sale of alcohol, scrap, minerals, etc.
The seller of the goods or services is responsible for collecting TCS and depositing it with the government. The rate of TCS differs according to the nature of the sale and ranges from 0.1% to 5% of the sale value. TCS must be deposited within a specified time frame and must be accompanied by a TCS return, which contains details of the TCS collected and deposited.
The TCS under GST ensures timely payment of taxes and is an important mechanism for collection of revenue from various sources. Businesses need to be aware of TCS under GST and have to comply with the rules and regulations to avoid any penalties.
What is the Rate of TCS Under GST?
Every dealer or trader engaged in the online sale of goods or services will receive their payment with a 2% deduction in TCS, or Tax Collected at Source.
Who Needs to Deduct TCS Under GST?
The main entities involved in the deduction of TCS in the GST system are e-commerce aggregators, who are mandated to deduct and remit TCS at a rate of 2% from each transaction.
What Rules Do TCS Deductors Need to Follow Under GST?
Well, if you’re someone who deducts TCS under GST, and more especially if you’re in the e-commerce business, then here are certain rules you’ve got to stick to in the world of GST. Let’s break it down:
Sign Up for GST
If you sell things through e-commerce or if you’re the e-commerce platform, then you must register for GST. Simple.
Pay On Time
If you collect TCS, make sure you pay it before the 10th day of the month following when you collected it. Do not forget to report in GSTR 8.
Yearly Report
Every year, by December 31st, you need to file a report in the proper form. And if you make mistakes, no problem—correct them until you file your return in September after the financial year ends.
Share the Details
The information you provide in GSTR 8? Yes, it gets shared electronically with your suppliers in GSTR 2A after the deadline for filing GSTR 8.
Provide Info When Asked
If an officer, usually not less than a Deputy Commissioner, asks for details about what you sold and what’s in your warehouse, you have to share that within 15 working days. And just so you know, not doing so could land you a penalty, possibly up to INR 25,000.
How Can the Supplier Claim Benefit of TCS Under GST?
The tax collected by the operator will be deposited into the electronic cash ledger of the supplier who provided the goods/services through the operator. The supplier can then avail credit for the tax amount collected and reported in the operator’s return from their electronic cash ledger.
`Who is Liable to Pay the Additional Output TCS Under GST in Case of Discrepancy?
In the context of GST, it is important to know who will bear the responsibility for paying the additional output Tax Collected at Source in case discrepancies do arise. Well, here’s how:
The statements by the operator, with the details of supply and their value, are matched with the information furnished by all concerned suppliers in their returns. If a mismatch in the value of supply is detected, the operator and the supplier are both intimated.
If this mismatch in value is not corrected within the specified time, the corresponding amount becomes an addition to the output tax liability of the supplier. The supplier will then have to pay the differential amount of output tax, with interest. This provision makes the GST system of TCS accountable and transparent. It compels the correction of any mismatch in time to avoid financial liabilities to the supplier.
Effect of the TCS in GST on E-commerce Operators
The Tax Collected at Source has tremendous ramifications for GST, particularly on e-retailers like Amazon, Flipkart, Snapdeal, and so on. These online retailers had to rework their online payment mechanisms and restructure their administration or accounts departments to integrate the concept of TCS in GST.
Conclusion:
TDS and TCS under GST are integral parts of the GST system to garner revenue from all possible sources and assure timely tax payments. Online application of TDS under GST is an easy and hassle-free process, and businesses need to make sure that they follow the right steps; otherwise, they might have to suffer some penalties.
Businesses can easily apply for TDS online and comply with their GST obligations by following the steps outlined above. If you need professional help, feel free to reach us at Tax salah for a hassle-free process.