GST update on TDS and TCS under GST

GST Update on TDS and TCS under GST

In VAT Law there is provision of TDS in case of work contract in most of the States though in Service Tax there is no provision of TDS and TCS . Under Service Tax, it is directly or indirectly being governed by Reverse Tax Mechanism. But GST law has expressly provided the TDS and TCS provision under Section 46 and 56 respectively.
Following person will deduct tax at source @ 1% on credit or payment made to supplier of goods and/or services.
·         Department or establishment of Central or State Govt.
·         Local authority
·         Government agencies
·         Such person or category of person as may be notified by the Central or State Govt.
The above provision will be applicable when the value of supply under contract exceeds Rs. 2.5 lacs. For the purpose of TDS, only value of supply shall be considered excluding the tax shown in invoice.

In same manner, E-commerce operators are made responsible under the GST law for depositing TCS at the rate of 1% on each of the transaction. It is a significant change which would increase a lot of compliance and administration cost for online operators like Flipkart, snapdeal, amazon etc. They would need to deposit the tax collected by the 10th day of the next month and file monthly returns.

The intention of the government behind introducing TDS and TCS in GST is not to collect the revenue but was to achieve more of transparency in tax collection. The TDS and TCS deposited will auto populate in GSTR-2 return of supplier and credit of the same will be available to him. Hence these will not be generate revenue to the Government but TDS and TCS will reflect in returns of the supplier. He will be forced to show these transactions in his return and pay taxes. It has been done with a view to have a control over such type of transactions.

In GST regime, it has been done that tax paid by supplier will auto populate in returns of buyer and he will take credit of the same. Hence, everything is linked. But the transactions will Government does not have any linkage as Government department are not taking credit. There was possibility of leakage of tax. The link has been established through TDS system.
Also, it is seen that the online business was not coming in control of department. The supplier in online business were not paying VAT as well as entry tax. But the Government has come up with a new idea to control these transaction with a concept of TCS. Now the e-commerce companies will deduct TCS and this will be reflected in return of supplier. Hence he has to show the transactions in returns.

The reverse charge mechanism for purchase from unregistered supplier is also a measure in same direction. It is not done by Government to earn revenue but for better compliance. The registered person has to not only deposit the tax but also generate invoice under reverse charge and show the same in his GSTR-1 return. This invoice will auto populate in his GSTR-2 return and he will get the credit of the same. Hence it is revenue neutral exercise but it will record the transactions. Moreover, all the formalities relating to unregistered dealer has been put on registered dealers.

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GST Update on TDS and TCS under GST

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