What Are TDS and TCS Under GST? Know Before You File GST Returns

Key Highlights

• The GST TDS is applicable to certain persons on taxable supplies above Rs 2.5 lakh.
• The GST TCS is applied to e-commerce operators receiving money from their clients on behalf of suppliers.
• The GST TDS rate is 2%, whereas the GST TCS rate is 1% of the net taxable value.
• Those who deduct the TDS have to file GSTR-7, while those who collect TCS have to file GSTR-8.
• TDS and TCS can be credited against GST liability by using the GST portal.
• The misuse of the tax rate and other filing mistakes can create problems with the credits.
• Timely compliance will help companies to avoid the fines and utilise tax credits effectively.

Missing a TDS deduction, failing to collect TCS, or filing the wrong GST return can lead to compliance issues, penalties, and difficulties in claiming tax credits. Many businesses, government contractors, and e-commerce sellers remain unsure about when TDS and TCS apply under GST and how these provisions differ from their Income Tax counterparts.

Despite the fact that TDS and TCS are mainly associated with the compliance of the income tax system. Still, there are provisions under the GST Act that identify those people from whom the tax should be deducted or collected, specify their rates, and also the procedures for filing returns.

Regardless of whether your organisation supplies goods/services to governmental entities or sells on e-commerce websites, it will definitely be useful for you to know the TDS and TCS procedure under GST.

What Are TDS Under GST?

Tax Deducted at Source (TDS) under GST is the system wherein certain people are required to deduct tax on their payment for goods/services above the prescribed limit. This deducted amount will be paid to the government as tax and will assist the supplier to get his/her tax credit.

Who Must Deduct TDS Under GST?

The following persons are required to deduct TDS under GST:

• Departments or establishments of the Central Government or a State Government
• Local authorities
• Governmental agencies
• Public sector undertakings (PSUs)
• Societies established by the Central Government, State Government, or a local authority
• Authorities, boards, or bodies established by Parliament, a State Legislature, or a government where government ownership or control is 51% or more
• Registered persons receiving B2B supplies of metal scrap covered under Chapters 72 to 81 of the Customs Tariff Act from another registered person, as notified on 10 October 2024

Threshold Limit for TDS Under GST

Under GST, TDS is applicable if the overall value of the taxable goods and/or services sold under the agreement is more than Rs. 2.5 lakh, excluding GST. In case the value of the contract is less than this, there is no need for TDS to be deducted.

TDS Rate Under GST

The GST TDS rate is 2% of the taxable value of the supply, calculated excluding GST. This is split as follows:

• Intra-state supply: 1% CGST and 1% SGST
• Inter-state supply: 2% IGST

This means that in the case of the engagement of a service provider by the government department wherein the services provided by them are chargeable and cross the limit, they should pay tax deducted at source on Goods and Services Tax before releasing the payment to the service provider.

What Is TCS Under GST?

Tax Collected at Source (TCS) under GST is a process where e-commerce operators must collect taxes on supplies that are taxable via their platforms. The tax collection will then be remitted to the government, and the taxpayer can claim GST credit for the same.

Who Must Collect TCS Under GST?

The following persons are required to collect TCS under GST:

• The operators of e-commerce who arrange the supply of goods or services by means of a digital/electronic platform
• The operators of e-commerce who receive consideration from customers on behalf of the sellers

TCS Rate Under GST

TCS under GST is at a rate of 0.5% CGST and 0.5% SGST (or 1%) for supplies within the state and 1% IGST for interstate supplies. It is applicable to the net value of supplies made using the e-commerce platform.

For instance, in a case where a seller makes a sale through an online marketplace, the marketplace collects the necessary TCS and thereafter transfers the payment to the seller, and the collected amount becomes available as a GST credit for the seller.

TDS and TCS Filing Under GST

Deductions made by individuals having liability to make TDS or collect TCS shall have to be reported in the prescribed GST returns. It is essential to file GST returns in order to claim the benefit of the input tax credit.

1. GST TDS Return (GSTR-7)

Persons required to deduct TDS under GST must file GSTR-7. The return includes all the details of the deductor, deductee, value of the contract, deduction of the tax and tax deposit with the government. Once the return is filed, the deduction amount becomes available to the supplier as GST credit. 

2. GST TCS Return (GSTR-8)

E-commerce operators collecting TCS are required to file GSTR-8. It includes all the details of the supply, the taxable value, the tax collected, and any refund or adjustment thereof. The collected TCS will then appear in the seller's GSTR-8 record. 

3. Due Dates and Compliance Requirements

Both GSTR-7 and GSTR-8 need to be submitted within ten days of the succeeding month. Timely filing is very important because incorrect reporting can delay tax credits, create mismatches in GST records, and lead to notices, interest and penalties. 

Income Tax TDS Return Due Dates

How to Claim TDS and TCS Credit Under GST

If TDS has been deducted or TCS has been collected on your behalf, you can claim the corresponding GST credit through the GST portal.

Step 1: Log in to the GST portal at gst.gov.in.

Step 2: Navigate to Services > Returns > TDS and TCS Credit Received.

Step 3: Select the relevant financial year and tax period, then click Prepare Online.

Step 4: Review the TDS or TCS details auto-populated from the deductor's GSTR-7 or the e-commerce operator's GSTR-8.

Step 5: Accept the correct entries, reject any discrepancies, and submit the statement.

Once it gets accepted, the credit is reflected in your e-cash ledger, and it can be used to pay GST, interest, penalties, fees or other liabilities. If any credit remains unused, you may be able to claim it as a refund. 

Common TDS and TCS Compliance Mistakes

Even small errors in TDS and TCS compliance can lead to credit mismatches, delays in filings, and unnecessary penalties. Businesses should avoid these common mistakes:

• Deduct TDS on contracts valued at Rs 2.5 lakh or less, where deduction is not required.
• Applying the wrong tax head, such as using CGST and SGST instead of IGST for an inter-state supply.
• Using an incorrect TCS rate can result in reconciliation issues.
• Missing the filing deadline for GSTR-7 or GSTR-8.
• Failing to file a nil GSTR-7 may affect subsequent return filing.
• Not issuing or downloading GSTR-7A certificates for suppliers.
• Reporting incorrect details in returns results in credit mismatches and compliance issues.

By being aware and making sure to avoid these mistakes, companies will be able to comply effectively with the requirements of GST, not face credit problems, and save themselves from fines or other inconveniences that may arise. If you have any doubts as to your responsibilities related to GST, consulting a tax lawyer would be wise.

Conclusion 

TDS and TCS under GST are both vital elements that are important to help achieve tax compliance and transparency in taxable transactions. While TDS is primarily applicable to the designated government departments/organizations, TCS is primarily applicable to facilitators of supplies in e-commerce.

Understanding their timing and applicability is very important for your business, because they could assist you in avoiding violations of the relevant tax laws and in the utilisation of tax credits. 

In case you face any questions regarding GST compliance, filing of claims for refunds, disputes, and others, you can turn to an online legal consultation at VakeelSaab. We have a lot of professionals who will guide you through the legal issues.