TDS and TCS under GST

TDS and TCS under GST is an acronym for tax deduction at source and tax collection at source. Did you know that these terms are even present under the Income Tax law? Well, in GST, both TDS and TCS came into force from 1st October 2018. Eversince then, it has become familiar among taxpayers. Are you an e-commerce operator or selling on one of such platforms? Or else, do you work for a government office? Then, TDS or TCS compliances are essential for you to know.

TDS refers to the tax which is deducted when the buyer of goods or services, such as government departments, makes payments under a business contract. On the other hand, TCS refers to the tax which is collected by the electronic commerce operator when a seller supplies some goods or services through its website and the payment for that supply is collected by the electronic commerce operator. Let's explore the basics of TDS and TCS under GST, rates, calculations and much more in this article. Here's what we have covered-

• TDS under GST: Basics and Applicability
• Impact of TDS under GST on Government Civil Contractors
• TCS in GST for the e-Commerce Sector: Compliance and Rates
• Impact of the TCS in GST on e-Commerce Operators
• Benefits of TDS and TCS under GST

Latest Updates

September 2024
From 10th October, 2024, registered persons receiving metal scrap (classified under Chapters 72 to 81 of the Customs Tariff Act, 1975) from other GST-registered persons must deduct TDS under GST.

10th July 2024
1. The CBIC released CGST Notification No. 12/2024 dated 10th July 2024 amending the format of the GSTR-7 return, to allow invoice-level reporting. Taxpayers are required to report the invoice/document details, the amount paid to the deductee liable for TDS, the TDS amount, the value of the transaction, and IGST/CGST/SGST details.
2. From July 10, 2024, the government has reduced the TCS rate for e-commerce operators from 1% to 0.5% (which is 0.25% of CGST and 0.25% of SGST/UTGST, or 0.5% of IGST). 

TDS under GST: Basics and Applicability

Who is liable to deduct TDS under GST?

• A department or an establishment of the Central Government or State Government; or
• Local authority; or
• Governmental agencies; or
• Such persons or category of persons, notified by the Government.
• Public sector undertakings, or
• A society established by the Central or any State Government or a Local Authority and the society is registered under the Societies Registration Act, 1860, or
• An authority or a board or any other body which has been set up by Parliament or a State Legislature or by a government, with 51% equity (control) owned by the government.

What is the rate of TDS to be deducted under GST?

The rate of TDS notified under the GST laws is 2% (1% CGST+1% SGST or 2% IGST) on the payments made to the seller of taxable goods or services.

Is there any limit for deducting TDS under?

If the total value of supply under a contract exceeds Rs 2.5 lakhs then the person/entity would be liable to deduct TDS.

What is the time limit for payment of TDS?

The deductor would be liable to make the payment of TDS by the 10th day of the next month in form GSTR-7. For example, an ‘X’ department of the Central Government deducts TDS at 2% from ‘Y’ on 5th March 2021, then it is liable to make payment by 10th April 2021.

Impact of TDS under GST on Government civil contractors

The Indian government, on average, gives out more than 10,000 civil contracts every year throughout the country. The contract for constructing/repairing the national highways average more than Rs.100 crores. 

These contracts are acquired by big construction companies and then sub-contracted to smaller firms and then again further sub-contracted to another small firm. This loop faces problems due to GST and in particular due to the TDS liability. 

The government would need to deduct TDS from the contractor which would ensure tax compliance by the contractors and all the other sub-contractors. In the past regime, many small civil/labour contractors never fulfilled tax compliance. Under GST, it will be imperative for them to get registered and fulfil tax compliance. 

For example, M/s ABC Ltd. got a contract for repair work on an 800-meter road by the government for Rs.10 lakhs. The company outsources work to M/s XYZ Ltd. which is further outsources it to a small civil or labour contractor M/s DEF & Associates. 

Under the earlier regime, M/s DEF & Associates would not have registered under service tax and VAT but now he would need to register under GST for claiming the ITC credit. The purpose of inserting the TDS provision under GST (Section 51 of the CGST Act) is to ensure tax compliance by the unorganised sectors such as the construction industry.

TDS rule will help in achieving transparency in the operations of government contracts and tax compliance.

TCS in GST for the e-Commerce Sector: Compliance and Rates

Section 52 has been inserted under the CGST law for all e-commerce aggregators to bring TCS in GST. e-Commerce aggregators are made responsible under the GST law for deducting and depositing tax at the rate of 0.5% from each transaction. 

Any dealers or traders selling goods or services online would get the payment after deduction of 0.5% tax (0.25% CGST+ 0.25% SGST or 0.5% IGST). This new rate was notified in CGST Notification No. 15/2024 dated 10th July 2024 and IGST Notification No. 01/2024 dated 10th July 2024.

It is a significant change that has increased the compliance and administration cost for online aggregators like Flipkart, Snapdeal, Amazon, etc. They would need to deposit the tax deducted by the 10th day of the next month in form GSTR-8. 

All the traders or dealers selling goods or services online would need to get registered under GST for claiming the tax deducted by e-commerce operators, even if their turnover is less than the threshold turnover limit notified for GST registration. 

For example, Mr Vinay Dua is a trader who sells his ready-made clothes online on Amazon India. He receives an order for Rs.10,000, inclusive of tax and commission. Amazon charges a commission of Rs.200. Further, there is a return worth Rs.1,000. Amazon would, therefore, need to deduct 0.5% tax (TCS) on the amount, excluding sales returns (Rs.1,000), but including the money paid as a commission (Rs.200) and GST. Amazon would thus be deducting TCS in GST at Rs.46 (0.5% of Rs.9,200) on net sales value.

Impact of the TCS in GST on e-Commerce Operators

Online sellers like Amazon, Flipkart, Snapdeal, etc. had to make certain changes in their online payment process and administration or finance department to implement the TCS in GST.

e-Commerce operators must register under GST in every state in which they operate. The ERP systems have to be well-integrated to apply these provisions in the day-to-day businesses smoothly. 

On the other hand, the e-tailers or sellers must compulsorily register under GST for operating on such e-commerce platforms. Moreover, the working capital of these sellers supplying through an e-commerce operator will be blocked until they file their return and claim the excess taxes paid.

Benefits of TDS and TCS under GST

TDS and TCS under GST have numerous benefits. Both TDS and TCS under GST were introduced by the government for strengthening regulation on tax evaders. Sections 51 and 52 of the CGST Act respectively covers the provisions of TDS and TCS under GST.

From a deductee or supplier’s standpoint, there will an automatic reflection in his electronic ledger once the deductor files his/her returns under the TDS system. The deductee can claim credit in his electronic cash ledger of this tax deducted and use it for payments of other taxes, at his convenience.

TDS majorly helps in bringing the unorganised sectors to comply with the tax provisions and keeps frauds at bay.

Likewise, TCS in GST regulates the online sellers, keeps a check on the transactions and ensures timely deposit of tax with the government.

For more understanding, read a host of articles by ClearTax on TDS and TCS under GST:

• SOP issued by the CBIC on TDS
• Viewing the ‘TDS and TCS Credit Received’ on the GST portal
• GST Registration for Ecommerce Collecting TCS under GST
• Impact of GST on E-Commerce Marketplace Sellers