Applicability of TDS/TCS provisions under GST w.e.f 01.10.2018

Applicability of TDS/TCS provisions under GST w.e.f 01.10.2018

Tax Deducted at Source which is popularly known as TDS was a part of the advance tax collection mechanism introduced by the Income Tax authority of India. There have been numerous provisions regarding the applicability of TDS and TCS.

As per notification number 50 and 51 dated 13.09.2018, of Central Tax, the Government of India has made it mandatory for Deduction of Tax at Source(TDS) and Collection of Tax at Source(TCS) as per Section 51(1) and Section 52 of the CGST Act, 2017, w.e.f 1st October 2018.

#Applicability of TDS/TCS coming into force from 01.10.2018 – What does it mean?

Simply this means that the old and legacy system of advance tax deduction and collection in form of STDS or WCT  are coming to an end partly. Currently, there are numerous provisions for TDS on payment either in full or in part, where a specified percentage of tax is required to be deducted as TDS like – TDS on salary, TDS on payment to contractors, TDS on payment for professional services, TDS on payment for rent, commissions, interest and etc.
New provisions for TDS to be effective from 01.10.2018 whereby the deductors are required to deduct TDS on payment to deductees for the supply of goods and services if contract value exceeds Rs. 2.5 Lakh. 

We should not forget that this TDS system is related to collection of Indirect Tax and this has nothing to do with the existing TDS system U/S 194C or 194J, which is collection of Direct Taxes.

This is very pertinent to know that this TDS provisions is nothing new but the abolition of old STDS(Work contract Tax or W.C.T) or VAT system that was supposed to be deducted under Service Tax or VAT system.

Thus, it can be said that this new provision is like old wine in new bottle with some moderations. New provisions has abolished old STDS system under Service Tax regime. We should not make confusion between these two.

Also, E-commerce aggregators like Amazon, Flipkart are now required to collect tax at source(TCS) on payment to the traders who use their online platform for selling goods to consumers as per Section 52 of the CGST Act, 2017, w.e.f 1st October 2018.

#What is most important to note with the applicability of TDS provisions?

With the applicability of TDS provisions under GST w.e.f 01.10.2018, the tax is to be deducted at source on payment for the supply of both goods and services. So, the most important part to be noted here is that TDS is to be deducted not only for the supply of services but also for the supply of goods as well. This is the new change. Earlier in the Finance Act 1994, there was no such provision regarding deduction of tax at Source on the supply of Goods and Services.

Image source Simple Tax India

#What has been enacted in Section 51(1) of CGST Act 2017?

As per Section 51(1) of the CGST Act 2017, tax has to be deducted on the supply of both Goods and Services as TDS by the following specified persons termed as Deductor as notified by the Government.

  • Central or State Government establishment or department;
  • Local authority ;
  • Governmental agencies like Planning Commission, National security council, Indian Council of Agricultural Research, Aeronautical Development Agency;
  • Any other person or persons as may be recommended by the council from time to time.

#From whom tax is to be deducted?

The deductors are required to deduct TDS on the following category of persons as per Circular no 33/2017.

  • An authority or board or a body corporate:
  1. .Set up by an Act of Parliament or by any state legislature;
  2. Established by any other Government;

with fifty-one per cent or more participation by way of equity or control, to carry out any function.

  • Any public sector undertaking;
  • A society established by Central Govt or any State Govt. under the Society Registration Act 1860;

#What is the threshold limit for deduction of TDS?

As per section 51(1) of the CGST Act 2017, TDS is to be deducted on payment for the supply of goods and services, if it exceeds the threshold limit of Rs.2,50,000 excluding GST amount. This means if the contract value excluding GST does not exceed the threshold limit of Rs.2.50 Lakhs, no TDS is to be deducted.

#What is the rate of TDS As per section 51(1) of the CGST Act,2017?

The deductors are required to deduct TDS @2% (1% each for CGST and SGST or 2% for IGST only) on payment to notified deductees for the supply of goods and services.

#When no TDS is to be deducted even if threshold limit of Rs.2.5 Lakh exceeds?

As per section 51(1) of the CGST Act 2017, no TDS is to be deducted even if threshold limit of Rs.2.5 Lakh exceeds if the supplier of goods and services and the place of supply is in a State or Union Territory, which is different from the State or Union Territory as the case may be, of the registration of the recipient.
This clause needs to be understood more clearly with the help of three different situations:
Say, Supplier of goods and services is denoted as (S), Place of supply is (P), and Recipient is (R)
Situation 1: One transaction happens and all the S,P and R is in the same State or Union Territory. Say S,P and R all three is in West Bengal. It will lead to intra-State or Union Territory supply.
Applicability of TDS— TDS is to be deducted by the deductee(R) @2%.(1% each for CGST and SGST). The supplier can take credit of TDS in his electronic cash ledger subsequently.
Situation 2: One transaction happens and S, and P,R are from different States. Say S is from Mumbai and both P and R from Kolkata. It will lead to inter-State supply.
Applicability of TDS— TDS is to be deducted by the deductee(R) @2% for IGST. The supplier can take credit of TDS in his electronic cash ledger subsequently.
Situation 3: One transaction happens and S, P and R in the different States. . Say both S and P is from Karnataka and R from West Bengal. It will lead to intra-State supply. Point to remember that GST is a destination based tax system.
Applicability of TDS— Ideally, TDS needs to be deducted by the deductee(R) @2%(1% each for CGST and SGST) for local supply at the State of Karnataka for P. But here, the TDS credit can not be passed on by R from West Bengal to S from Karnataka. Since SGST@1% can not be transferred against TDS deducted @2%.Hence, the supplier can not take credit of TDS in his electronic cash ledger due to place or point of supply is in the same state. So, no TDS in this case should be deducted.
Thus, when both the Supplier and place of supply is in the different states from that of the Recipient, no TDS is to be deducted As per section 51(1) of the CGST Act 2017.

#What is the prescribed time limit for deposition of TDS so deducted to the Govt. u/s 51(2)?

As per Section 51(2) TDS @2% so deducted is to be deposited to the Govt. within 10 days including holidays from the end of the month in which TDS was deducted. This means if TDS was deducted on 26th October 2018, it has to be mandatorily deposited within 10th of November 2018.

#When TDS certificate is to be issued as per Section 51(3)?

As per Section 51(3) the deductor is required to issue TDS certificate in the prescribed format to the deductee within 5 days from the date of deposition of TDS so deducted to the Govt. The TDS certificate should mention the necessary details such as contract value,rate of TDS,amount of TDS deducted, date of deposition to the Govt. and other relevant information.
To download Form GSTR7-A_click here

#Penalty levied for non issuance of TDS certificate as per Section 51(4)?

If the deductor fails to issue TDS certificate in the prescribed format within 5 days as required as per Section 51(3), the deductor is liable to pay a penalty cum late fee of Rs.100 per day after thge expiry of such 5 days till the date of issuance but subject to maximum penalty of Rs.5000.

Applicability of TDS/TCS provisions under GST w.e.f 01.10.2018

Here we will discuss on Applicability of TCS provisions under GST w.e.f 01.10.2018 vide Notification No.51/2018 of Central Tax dated 13.09.2018.

#Who is liable to collect TCS as per Section 52?

As per Section 52 of the CGST Act, 2017, every E-commerce operators are liable to collect Tax at Soure(TCS) where supply of goods are made by other suppliers through them.

This means ,the E-commerce aggregators like Amazon, Flipkart, Snapdeal and etc. are now required to collect tax at source(TCS) on payment to the traders who use their online platform for selling goods to consumers as per Section 52 of the CGST Act, 2017, w.e.f 1st October 2018.

#What is the prescribed rate of TCS As per section 52 of the CGST Act,2017?

As per the above section every e-commerce operator is required to collect TCS @1% of the net value of taxable supply made through them by other suppliers.

Let’s understand the above clause with an easy example.
Say, X Pvt. Ltd. has sold a mobile phone for Rs. 20000 to a customer on Amazon excluding 18% GST. Now Amazon has an agreement with X Pvt. Ltd. for a straight commission of 3% on any mobile phones sold on their platform. Now, when Amazon will pay to X Pvt. Ltd. Rs.19400(20000-600) excluding 18% GST, it has to collect tax at source or TCS @1% on entire Rs.20000, i.e. Rs.200. Here this is pertinent to note that TCS of Rs.200 will be collected on the entire taxable value of transaction i.e. Rs.20000 and not on Rs.19400 after deducting their commission.

#What is the prescribed time limit for deposition of TCS so collected to the Govt. u/s 52(3)?

As per Section 52(3) , TCS is to be deposited to the Govt.within 10 days from the end of the month in which TCS was collected.

#When TCS certificate is to be issued as per Section 52(4)?

As per Section 52(4) , the operators are required to issue a TCS certificate within 10 days from the end of the month in which TCS was collected mentioning the details of supply of goods and services effected through it, returns of goods & services through it in Form GSTR-8.
Final word pplicability of TDS/TCS provisions under GST w.e.f 01.10.2018
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