TDS (Tax Deducted at Source) is a mechanism under Goods and Services Tax (GST) in which the payer deducts a specified percentage of tax from the payment made to the recipient. The payer then deposits this tax amount with the government.
TCS (Tax Collected at Source) is another provision under GST in which the seller or service provider collects a specified percentage of tax from the buyer or recipient and deposits the collected tax amount with the government.
TDS and TCS in GST were introduced in the Goods and Service Tax regime on October 1, 2018. Like the Income Tax laws, these provisions aim to collect tax at the source, contributing to revenue collection and compliance.
TDS allows tax deduction when making certain payments, while TCS mandates tax collection when receiving payments for specific transactions. Both systems ensure timely tax payments and streamline the overall process.
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Understanding TDS Under GST
TDS under GST is a method of collecting tax at the source of payment. The applicability of TDS under GST covers various scenarios, including certain government transactions and other specified areas. The responsibility of deducting TDS lies with the payer, who must deduct the tax at a prescribed rate of 1% to 2%, depending on the nature of the transaction.
The payer must deposit the deducted TDS amount with the government within the stipulated time frame. Additionally, filing a mandatory TDS return is an essential compliance requirement under the GST regime.
Who is Liable to Deduct TDS Under GST?
Entities liable to deduct TDS under GST include:
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Central/State Government Departments
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Local Authorities
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Governmental Agencies
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Public Sector Undertakings (PSUs)
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Societies established by Central/State Government
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Authorities with government equity of more than 51%
Criteria for Liability:
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Value Threshold: TDS is applicable when the contract value exceeds ₹2.5 lakhs.
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Supplies under a Contract: Deduction applies to the supply of goods/services made to the entities mentioned.
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Registration Requirement: Entities must be registered under GST to deduct TDS.
What is The Rate of TDS Under GST?
The rate of TDS under GST is 2% on the payment made to the seller of taxable goods or services. This rate is bifurcated as follows:
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1% CGST (Central Goods and Services Tax)
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1% SGST (State Goods and Services Tax) or 2% IGST (Integrated Goods and Services Tax)
The bifurcation of CGST, SGST, or IGST depends on the nature of the transaction, whether it is an intrastate or interstate supply.
Limit for Deducting TDS under GST
TDS under GST applies when the total supply value under a contract exceeds ₹ 2.5 lakhs. If the total supply value under a contract exceeds this threshold, the deductor must deduct TDS from the payment made to the supplier.
Time Limit & Rules for TDS Payment in GST
The deductor must make the TDS payment by the 10th day of the following month using form GSTR-7. For example, if TDS is deducted in May, the deductor must deposit the deducted amount with the government by June 10th and file the GSTR-7 return for GST payment online.
Understanding TCS Under GST
TCS under GST is a method of collecting tax at the time of sale. It’s applicable to e-commerce operators. The seller collects TCS at 1%, typically from 0.5% to 1%. The TCS rate generally is 0.5% for intra-state supplies and 1% for inter-state supplies, with some specific exceptions where higher rates apply.
Timely depositing the collected TCS amount with the government and filing a TCS return are essential compliance requirements. Failing to do so can lead to penalties.
Who is Liable to Deduct TCS under GST?
E-commerce aggregators like Amazon, Flipkart, etc., are the primary TCS deductors under GST. They’re required to deduct 1% TCS from each transaction facilitated through their platform.
What is The Rate of TCS Under GST?
Any dealer or trader selling goods or services online will face a 1% TCS deduction by e-commerce aggregators.
Rules for TCS Deductors Under GST
TCS deductors like e-commerce operators and suppliers must follow these rules:
1. Mandatory GST registration.
2. Remit the collected TCS by the 10th of the following month.
3. File an annual TCS statement by December 31st.
4. Provide details upon request, or else face penalties.
Staying compliant with TCS rules is crucial for smooth tax collection and avoiding penalties under GST.
Benefits of TDS and TCS in GST
1. Automatic Reflection in Electronic Ledger
One of the standout advantages of the TDS system is its seamless integration with the electronic ledger. As soon as the deduction occurs, your ledger gets updated in real-time, reflecting the credited amount. This efficient process allows you to use the credited sum conveniently for various tax payments, streamlining your compliance journey.
2. Compliance for Unorganised Sectors
TDS plays a pivotal role in transforming unorganised sectors into tax-compliant entities. Deducting tax at source acts as a deterrent against tax evasion, ensuring that these sectors contribute their fair share. This mechanism not only promotes compliance but also creates a level playing field for all businesses, fostering a culture of accountability.
3. Regulation of Online Sellers with TCS
In the realm of online commerce, TCS has emerged as a game-changer. It ensures transparency and regulation in online transactions, preventing tax evasion by online sellers. With TCS in place, you can confidently engage in e-commerce activities, knowing that the system is safeguarding your interests and promoting fair trade practices.
4. Strengthening Regulatory Framework
Collectively, TDS and TCS under GST are integral components of a robust regulatory framework that fosters transparency and fairness in the taxation system. These mechanisms work in tandem to strengthen the overall compliance environment, making it easier for businesses and individuals to fulfil their tax obligations. By promoting accountability and deterring tax evasion, TCS and TDS under GST contribute to a more equitable and efficient taxation system.
Frequently Asked Questions (FAQs)
1. How are TDS and TCS calculated?
TCS and TDS in GST are calculated based on specified percentages in the Income Tax Act, applicable to different types of payments or transactions.
2. Why is TDS deducted?
TDS is deducted to ensure timely and efficient collection of taxes, reduce tax evasion, and provide a steady revenue stream for the government. It ensures that the tax liability is met at the time of earning the income.
3. What are TDS and TCS received in GST?
TDS in GST refers to the tax deducted at the source by the buyer while making payments to the supplier. It helps track transactions and ensures compliance.
TCS in GST is the tax collected at the source by e-commerce operators. The collected amount is deposited with the government.
4. Can GST TDS be refunded?
Yes, a refund under GST is possible if an excess amount is deducted for TDS.
