TDS and TCS are mechanisms for collecting taxes under the Goods and Services Tax (GST) regime in India. TDS applies to specified payments while TCS applies to specified sales. Businesses must comply with TDS/TCS rules to avoid penalties.
TDS and TCS under GST: A Guide for Businesses
Goods and Services Tax (GST) is an indirect tax imposed 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 essential components of GST, aimed at collecting revenue from various sources and ensuring timely payment of taxes. In this blog, we will delve into TDS and TCS under GST, their differences, and the process of applying TDS online.
Benefits of TDS and TCS Under GST
The incorporation of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) within the GST framework comes with a myriad of advantages. Introduced by the government to bolster regulation against tax evaders, Sections 51 and 52 of the CGST Act outline the provisions for TDS and TCS under GST.
From the perspective of the deductee or supplier, the TDS system offers automatic reflection in their electronic ledger once the deductor files returns. This facilitates the deductee in claiming credit in their electronic cash ledger for the deducted tax, allowing convenient utilisation for other tax payments.
TDS plays a pivotal role in bringing unorganised sectors into compliance with tax regulations, effectively mitigating fraudulent activities.
Similarly, TCS in GST serves as a regulatory measure for online sellers. By overseeing transactions, it ensures the systematic and timely deposit of taxes with the government. This dual approach of TDS and TCS not only strengthens tax enforcement but also promotes transparency, compliance, and credibility within the GST framework.
Differences Between TDS and TCS Under GST
TDS and TCS under GST are two different methods of collecting tax. The major differences between TDS and TCS are as follows:
- TDS is deducted at the time of payment, while 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, such as the payment of salary, commission, professional fees, rent, etc. TCS is applicable in specific cases, such as the sale of alcohol, scrap, minerals, etc.
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What is TDS under GST?
Tax Deducted at Source (TDS) is a method of collecting tax at the source of payment itself. TDS is applicable under the Goods and Services Tax (GST) regime in 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, such as the payment of salary, commission, professional fees, rent, etc.
The person making the payment is responsible for deducting TDS and depositing it with the government. The TDS rate varies depending on the nature of the payment, and it ranges from 2% to 10%. TDS must be deposited within a specified time frame and must be accompanied by a TDS return, which contains details of the TDS deducted and deposited.
TDS under GST helps in ensuring timely payment of taxes and is an important mechanism for collecting revenue from various sources. Businesses must be aware of TDS under GST and must comply with the rules and regulations to avoid any penalties.
Who is Liable to Deduct TDS Under GST?
Under the GST framework, the responsibility to deduct Tax Deducted at Source (TDS) lies with specific entities and individuals. The following parties are liable to deduct TDS under GST:
- 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?
Applying TDS online under GST is a simple and straightforward process. The following steps will guide you through the process:
- Register for GST: To apply for TDS online under GST, you must first register for GST. The registration process is simple and can be completed online.
- Obtain a GSTIN: After registering for GST, you will receive a GST Identification Number (GSTIN), which is a unique number assigned to you.
- Deduct TDS: The next step is to deduct TDS from the payment made. The TDS rate varies from 2% to 10% depending on the nature of the payment.
- Deposit TDS: Once TDS is deducted, it must be deposited with the government. You can deposit TDS online using the GST portal.
- File TDS Return: After depositing TDS, you must file a TDS return. The TDS return must be filed quarterly and must contain details of TDS deducted and deposited.
What is the Rate of TDS to Be Deducted Under GST?
The GST laws specify a TDS rate of 2% (comprising 1% CGST and 1% SGST or 2% IGST) applicable to payments made to the provider of taxable goods or services.
Is there Any Limit for Deducting TDS Under?
If the aggregate value of supply within a contract surpasses ₹ 2.5 lakhs, the individual or entity becomes responsible for deducting TDS.
What is the Time Limit for Payment of TDS?
The entity responsible for deduction must remit the TDS payment using form GSTR-7 by the 10th day of the subsequent month. For instance, if Department ‘X’ of the Central Government deducts TDS at a rate of 2% from ‘Y’ on March 5, 2021, the obligation to make the payment arises by April 10, 2021.
Impact of TDS Under GST on Government Civil Contractors
In India, the government awards over 10,000 civil contracts annually, with contracts for constructing or repairing national highways averaging more than ₹ 100 crores. These contracts follow a complex chain, as large construction companies secure them, sub-contract to smaller firms, and further delegate tasks to even smaller entities. This intricate loop encounters challenges under GST, particularly in relation to TDS liability.
To ensure tax compliance by contractors and sub-contractors, the government is required to deduct TDS from the primary contractor. Many small civil and labour contractors presently fall short of tax compliance requirements. With GST in effect, it becomes imperative for them to register and adhere to tax compliance norms.
For instance, if M/s ABC Ltd. secures a government contract for repairing an 800-metre road worth ₹ 10 lakhs, the company may outsource the work to M/s XYZ Ltd., which, in turn, sub-contracts it to a smaller entity like M/s DEF & Associates.
Under the previous taxation system, M/s DEF & Associates might not have bothered with service tax and VAT registration. However, under GST, registration becomes essential for claiming Input Tax Credit (ITC). The introduction of the TDS provision under GST (Section 51 of the CGST Act) is designed to foster tax compliance in unorganised sectors like the construction industry.
The TDS rule plays a crucial role in promoting transparency in the execution of government contracts and ensuring tax compliance across the supply chain.
What is TCS under GST?
Tax Collected at Source (TCS) is a method of collecting tax at the time of sale under the Goods and Services Tax (GST) regime in India. TCS is a mechanism in which a specified percentage of tax is collected by the seller of goods or services and deposited with the government. TCS under GST is applicable only in specific cases, such as the sale of alcohol, scrap, minerals, etc.
The seller of goods or services is responsible for collecting TCS and depositing it with the government. The TCS rate varies depending on the nature of the sale, and it ranges from 0.1% to 5%. 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.
TCS under GST helps in ensuring timely payment of taxes and is an important mechanism for collecting revenue from various sources. Businesses must be aware of TCS under GST and must 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 (Tax Collected at Source).
Who Needs to Deduct TCS Under GST?
In the GST system, the primary entities responsible for TCS deduction are e-commerce aggregators, mandated to deduct and remit TCS at a rate of 2% from each transaction.
What Rules Do TCS Deductors Need to Follow Under GST?
In the world of GST, if you’re someone who deducts TCS (Tax Collected at Source), especially if you’re in the e-commerce business, there are certain rules you’ve got to stick to. Let’s break it down:
Sign Up for GST
If you sell stuff through e-commerce or you’re the e-commerce platform itself, you’ve got to register for GST. It’s a must.
Pay On Time
If you deduct TCS, make sure to pay it by the 10th day of the month following when you collected it. And don’t forget to report it in GSTR 8.
Yearly Report
Every year, by December 31, you’ve got to file a report in the right form. And if you make any mistakes, no worries – you can fix them until you file your return in September after the financial year ends.
Share the Details
The info you put in GSTR 8? Yeah, 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 lower than a Deputy Commissioner, asks for details about what you sold and what’s in your warehouse, you’ve got to share that within 15 working days. And just a heads up, 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, determining who bears the responsibility for paying the additional output Tax Collected at Source (TCS) when discrepancies arise is crucial. Here’s how it works:
The operator’s statements, containing supply details and their values, are cross-checked with the information submitted by all respective suppliers in their returns. If any disparity in the value of supplies is identified, both the operator and the supplier are notified.
Should this discrepancy in value not be rectified within the specified timeframe, the corresponding amount becomes an addition to the output tax liability of the supplier. The supplier is then obligated to settle the differential amount of output tax, accompanied by interest charges. This mechanism ensures accountability and transparency in the GST framework, compelling timely resolution of any inconsistencies to avoid financial implications for the supplier.
Impact of the TCS in GST on E-commerce Operators
The introduction of Tax Collected at Source (TCS) in the GST framework has brought about significant changes for online retailers such as Amazon, Flipkart, Snapdeal, and others. These platforms had to undergo adjustments in their online payment processes and restructure their administration or finance departments to seamlessly implement TCS in GST.
One major impact is the obligation for e-commerce operators to register under GST in each state where they conduct business. This necessitates thorough integration of ERP systems to effectively apply these provisions in their day-to-day operations.
Conversely, e-tailers and sellers are mandated to compulsorily register under GST to operate on these e-commerce platforms. Additionally, the working capital of these sellers, who supply through e-commerce operators, becomes temporarily tied up until they file their returns and claim any excess taxes paid. This shift underscores the need for strategic financial planning and system integration to navigate the implications of TCS in the dynamic landscape of e-commerce under the GST regime.
Wrapping Up
In conclusion, TDS and TCS under GST are essential components of the GST system aimed at collecting revenue from various sources and ensuring timely payment of taxes. Applying TDS online under GST is a simple and straightforward process, and businesses must ensure that they follow the correct procedures to avoid any penalties.
By following the steps outlined above, businesses can easily apply TDS online and fulfill their GST obligations. If you are interested in getting expert advice for a seamless process, Vakilsearch is here to help you!
Frequently Asked Questions
When TDS and TCS both are applicable?
TDS and TCS are applicable under GST when the aggregate value of a supply or the total consideration for a service exceeds specified thresholds. TDS is applicable when the supply involves government departments or specified persons, while TCS is applicable to e-commerce operators.
What is the TDS rate under GST?
The TDS rate under GST is 2% (1% CGST + 1% SGST or 2% IGST). This deduction is made by specified persons, typically government departments, when making payments to suppliers exceeding a prescribed limit, ensuring tax compliance in the supply chain.
What is TCS under GST exempt?
TCS under GST is exempt for certain categories of goods and services, such as alcoholic liquor, petroleum, and diesel. These exemptions aim to streamline the tax collection process, focusing on specific sectors where TCS may not be applicable.
What is TCS in the GST limit?
The TCS limit under GST is applicable to e-commerce operators, who are mandated to collect TCS at the rate of 1% on the net taxable value of goods or services. This applies when the total sales value exceeds ₹ 2.5 lakhs in a financial year, providing a threshold for TCS implementation.
Who will collect TCS under GST?
E-commerce operators are responsible for collecting TCS under GST. Platforms like Amazon, Flipkart, and others collect 1% TCS on the sale of goods or services facilitated through their platforms. This mechanism ensures systematic tax collection and compliance within the e-commerce sector.
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