Role of TCS and TDS in GST

GST itself was a game-changer when it was introduced in 2017. On 1st October 2018, TCS/TDS was introduced which was an icing on the cake. Before going into the details of the role it plays in our economy, let’s discuss its meaning.

TDS means Tax deducted at source is a kind of tax that is collected by tax departments of central and state government, local authorities like panchayat, etc. Notification No. 50/2018 was also issued on 13th September 2018 stating the names of other bodies that are liable to collect TDS.

Suppose Rakesh is a salaried person and the government has asked his employer to deduct a small amount of tax from his salary as TDS and credit the same. So Rakesh gets a net amount.

A 2% TDS has to be deducted.

Let us assume a supplier makes a supply of Rs 5000 to Mr. Rahul and the applicable GST is 18%. When Rahul pays the supplier, he will pay Rs. 5000 (value of supply), Rs. 900 (18% GST), and 2% TDS i.e. Rs.100 to the appropriate government.

The TDS deducted should be credited to the appropriate government within 10 days.

  • CGST, IGST- Central Government
  • SGST-State Government

The deductors must get registered under GST Registration for the collection of TDS. Non-fulfillment of the above condition can lead to a penalty of Rs. 10,000. All eligible candidates have to get registered and there is no threshold limit to this.

TCS, on the other hand, is Tax collected as the source which is collected by the E-Commerce Operators involved in managing and operating a business through the E-Commerce platform. Like TDS, TCS has to be submitted to the appropriate government and also has to file GSTR-8 for the same.

Role of TCS/TDS

  • Many individuals who didn’t pay taxes so the government didn’t know the actual figures of actual taxpayers and non-taxpayers. A lot of people were escaping from paying taxes so to control it the government introduced TCS/TDS which has resulted in less tax evasion of both direct and indirect taxes.
  • TCS/TDS has helped the government in revenue generation which it can use for the poor people leading to a more equitable distribution of income in the economy.
  • TCS has helped in monitoring the movements of business operating through the E-Commerce portals that involve a lot of daily transactions.
  • With the introduction of TCS, The Tax department has gained more power over the E-Commerce Portals so now the people operating through E-Commerce portals have to make sure that their supplies are correctly updated otherwise they have to pay penalty fees.
  • The submission of TCS on the 10th of every month has allowed the government to keep a close check on the sellers. They cross-check if the suppliers have reported correct sales. In case of any mismatch, the GST team will take the appropriate actions.
  • Insertion of TCS has lead to increased transparency and compliance.
  • TDS deducted from the contractors by the government has ensured compliance of tax by sub-contractors and contractors which were earlier not compliant with the tax system.
  • TCS has helped the government in tracking small sellers operating over the E-Commerce portal that would have escaped from paying taxes and would have been out of tax departments reach.
  • The refund on TCS collected by the E-Commerce Operators has resulted in the timely completion of GST Return Filing under the GST framework.

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