Centre defers TDS & TCS under GST

The apex body of Goods and Services Tax, GST Council, has postponed the Tax Deducted at Source (TDS) and Tax Collection at Source (TCS) provisions for the time being after the ‘feedback received from trade and industry’. Small businesses, the users of e-commerce platform, have also been exempted from registration.

E-commerce companies can conduct their business as usual. After GST Council’s announcement on Monday, they need not require collecting 1 per cent TCS while making payment to suppliers under the GS), set to roll out from July 1. Earlier, the deductor was liable to make the payment of TDS by the 10th day of the next month.

As per GST law, if the total value of supply under a contract exceeds Rs 2.5 lakh, then the person or the firm is liable to deduct TDS at the rate of 1 per cent. Similarly, e-commerce companies were also required to collect 1 per cent TCS while making payment to suppliers. Implementation of both the provisions has now been deferred.

Now, small businesses, selling goods or services through e-commerce portal with turnover less than Rs 20 lakh, would do their business as usual. They don’t require to register themselves as of now.  

To operationalise TCS and TDS while implementing GST, one needs a fully operational GSTN-facilitating registration of e-commerce operators followed by invoice generation and payment. 

“Reportedly, right now there is a lot of pressure on GSTN on registration itself, because of not only migration but also applications for new enrollment. Same with TDS. Perhaps therefore both TCS and TDS have been postponed, not to give extra pressure on GSTN. These problems wouldn’t have arisen, had the GSTN been fully ready,” said Sumit Dutt Mazumdar, former Chairman of CBEC, a top body of indirect tax.

“This provision has been kept in abeyance. Based on the feedback received from trade and industry, the government has decided to postpone provision relating to TDS (Section 51) and TCS (Section 52) of the CGST/State GST Act 2017, with the objective of ensuring smooth rollout of GST,” the GST Council said in a statement quoting the finance ministry.

“This step has been taken to provide more time for persons liable to deduct tax at source/e-commerce companies and their suppliers to prepare for the historic tax reform,” the statement added.

TDS compliance

The government wants to track all the transactions of contractors or suppliers in GST regime through TDS and TCS provisions. Central and state governments and their agencies allot thousands of contracts every year to private firms. These firms sublet the contracts to other firms. Governments or these agencies have to collect 1 per cent TDS from these firms. These firms have got some relief for the time being on the TDS liability of GST.

Suppose, if the Revenue Department of Finance Ministry has allotted any contract to technical firm, then the department is liable to deduct TDS at 1 per cent from the firm on the contract value. The revenue department has to collect or deduct this amount by July 5, 2017, then it is liable to make payment by August 10, 2017. Now the provision has been deferred for an indefinite time.

TCS compliance

In GST law, there was a rule for the e-commerce aggregators to deduct the 1 per cent tax from each of the transaction and deposit to government. Any online dealers or traders would get the payment after deduction of 1 per cent tax as credit. TCS provision would increase the compliance and administration cost for online aggregators like Amazon, Snapdeal and Flipkart. As per GST rule, these firms also need to deposit the deducted tax amount by the 10th of the next month. However, this rule has also been deferred too.

Suppose, Mr X is a trader who sells his bags online on Amazon. If he gets an order of Rs 1, 00 inclusive of tax and commission. Ideally, Amazon will charge a commission of Rs 1. Amazon would, therefore, need to deduct 1 per cent tax (TCS).

All Government agencies their contractors (TDS), online dealers or traders (TCS) have to get registered under GST, which have not taken place as of now. GST council has decided to give them more time for this registration.

The GST Network portal has started accepting registration of TDS, TCS deductors and e-commerce operators only from Sunday.

Given the huge rush, it is unlikely that all registrations would be done before the 1 July, the rollout date.

”This ensures business continuity for the marketplace but most importantly benefits our sellers since they don’’t have to deal with pressures of cash flow at a time when they are transitioning into a new tax regime,” Amazon.in said in a statement.

Pressure on GSTN

The GST Network (GSTN) portal started accepting registration of TDS, TCS deductors and e-commerce operators only from Sunday. 
Given the huge rush, it is unlikely that all registrations would be done before July 1, the rollout date for the GST regime