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Taxation (Part B)
Chapter - 14

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 CONCEPT NOTES

GOODS AND SERVICES TAX

CHAPTER 14

TAX DEDUCTION AT SOURCE AND COLLECTION OF TAX AT SOURCE

INTRODUCTION

TDS (Tax Deduction at Source) is a system introduced by the Income Tax Department where a
percentage of the payment is deducted by the recipient at the time of payment to the supplier.
It ensures regular tax collection, prevents evasion, and expands the tax net by creating an audit
trail. Section 511 of the CGST Act mandates TDS in certain circumstances, specifying deductors,
rates, and remittance procedures.

TCS (Tax Collection at Source) is similar to TDS but involves the electronic commerce operator
collecting tax when a supplier sells goods or services through its portal. Section 522 of the CGST
Act outlines the tax collection persons, rates, and remittance procedures. The
deducted/collected tax reflects in the Electronic Cash Ledger of the deductee/supplier.

RELEVANT DEFINITIONS

Local authority, as defined in Section 2(69), includes:

(a) "Panchayat" as per article 243(d) of the Constitution;

(b) "Municipality" as per article 243P(e) of the Constitution;

(c) Municipal Committee, Zilla Parishad, District Board, and other authorities entrusted with
municipal or local fund control;

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(d) Cantonment Board defined in the Cantonments Act, 2006;

(e) Regional Council or District Council under the Sixth Schedule to the Constitution;

(f) Development Board under article 371 and article 371J of the Constitution;

(g) Regional Council under article 371A of the Constitution.

"Cess," as defined in Section 2(22), has the same meaning as assigned in the Goods and
Services Tax (Compensation to States) Act.

Electronic Commerce (e-commerce) is the supply of goods, services, or digital products over a
digital or electronic network (Section 2(44)).

Electronic Commerce Operator is a person who owns, operates, or manages a digital or

electronic facility or platform for electronic commerce (Section 2(45)).

Taxable Supply refers to a supply of goods or services or both that is subject to tax under the
GST Act (Section 2(108)).

Supplier, concerning goods or services, is the person providing them, including an agent acting
on behalf of such supplier (Section 2(105)).

Notification is an official gazette publication, and "notify" and "notified" are interpreted
accordingly.

TAX DEDUCTION AT SOURCE [SECTION 51 OF CGST ACT]

SECTION 51 : TAX DEDUCTION AT SOURCE

(1) The government, as per this section, can mandate a deductor, including government
departments, local authorities, and designated persons, to deduct one percent tax from
payments exceeding two lakh and fifty thousand rupees made or credited to a supplier of
taxable goods or services.

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(2) The deducted tax under this section must be paid to the Government by the deductor within
ten days after the month in which the deduction occurred, as prescribed.

(3) A tax deduction at source certificate must be issued in the prescribed form and manner.

(5) The deductee can claim credit for the deducted tax in their electronic cash ledger based on
the information reflected in the deductor's return under Section 39(3), as prescribed.

(6) If a deductor fails to pay the deducted tax to the Government under sub-section (1), they
must pay interest as per the provisions of sub-section (1) of section 50, in addition to the
deducted tax amount.

(7) The calculation of the amount in default under this section will follow the procedures
outlined in either section 73 or section 74.

(8) Refunds resulting from excess or erroneous deduction by the deductor or the deductee will
be handled according to the provisions of section 54.

ANALYSIS

Deductors of Tax at Source

Under GST Section 51, certain entities, including government departments, local authorities,
governmental agencies, and notified persons, must deduct tax at source. For Ministry of
Defence authorities, TDS applies to specific entities listed in Notification 57/2018 CT. Section
51(1)(d) covers entities with 51% or more government participation, societies under the
Societies Registration Act, 1860, and public sector undertakings (PSUs). The 51% participation
criterion applies to bodies set up by an Act of Parliament or State Legislature or established by
any government.

Categories of persons not liable to deduct TDS

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Tax deduction at source (TDS) is not applicable in the following cases:

a) Goods and/or services supplied from one Public Sector Undertaking (PSU) to another PSU,
regardless of distinct person status [Notification No. 61/2018 CT dated 05.11.2018].
b) Supply of goods and/or services between entities specified in clauses (a), (b), (c), and (d) of
section 51(1) of the CGST Act [Notification No. 73/2018 CT dated 31.12.2018].

Deductees
Deductees are suppliers whose invoice for taxable goods and/or services under a contract
exceeds Rs.2,50,000, excluding tax and cess.

Standard Rate of deduction

Under the CGST Act, 2017, tax is deducted at a rate of 1% on payments exceeding Rs.2,50,000
for taxable goods and/or services under a contract. This applies to the total contract value,
even if individual supplies are below Rs.2,50,000. Deductors are required to deduct 1% tax from
payments made or credited to the supplier.

NO TDS

The Proviso to Section 51(1) of the CGST Act states that no TDS is applicable when the supplier's
location and place of supply differ from the recipient's state/union territory of registration. In
brief:

(a) If the supplier, place of supply, and recipient are in the same state, TDS (Central plus State
tax) is deducted, and the supplier can avail credit.

(b) When the supplier and place of supply are in different states, TDS (Integrated tax) is
deducted, and the supplier can claim credit.

(c) If the supplier and place of supply are in State A, and the recipient is in State B, TDS is not
deducted as it complicates the transfer of TDS to the supplier's cash ledger.

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Value of Supply
For TDS under Section 51 of the CGST Act, 2017, the value of supply is the amount mentioned in
the invoice, excluding Central tax, State tax, Union territory tax, Integrated tax, and cess.
Deposit of TDS with the Government

Deposit of TDS with the Government

TDS amount must be deposited by the deductor into the Government account by the 10th of
the following month.

TDS Certificate
Deductor issues TDS certificate (Form GSTR 7A) to deductee, including details like certificate
number, GSTINs of both parties, legal/trade names of deductee, tax period, supply details, and
the amount of tax deducted.

Non- remittance by the deductor

If the deductor fails to remit the TDS amount to the Government within the specified time, they
are liable for penal interest under Section 50, in addition to the deducted tax amount.

Reflection of amount of TDS

The tax deducted is recorded in the deductee's Electronic Cash Ledger and is reflected in the
deductor's return (GSTR-7) under Section 39(3). This enables the deductee to claim credit in
their electronic cash ledger. The system ensures accuracy and cross-verification between the
amounts in the electronic cash ledger and the deductor's return, similar to the practice in
income tax with E-TDS returns and 26AS statements.

Determination of amount in Default

Any default in determining the amount under Section 51 will be addressed according to the
procedures specified in Section 73 or Section 74, as applicable.

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Refund on excess/erroneous deduction
Both the deductor and the deductee can claim a refund for excess or erroneous deduction. The
refund process follows the provisions outlined in Section 54.

Registration7 [Rule 12 of CGST Rules, 2017]

Persons obligated to deduct tax under Section 51 must apply for registration electronically, and
the proper officer grants registration within 3 days. If no longer liable for TDS, the officer may
cancel registration per Rule 22 of CGST Rules.

COLLECTION OF TAX AT SOURCE [SECTION 52 OF CGST ACT]

SECTION 52 : COLLECTION OF TAX AT SOURCE

(1) Every electronic commerce operator (referred to as "operator") must, not being an agent,
collect an amount (up to 1%, as notified by the Government) on the net value of taxable
supplies made by other suppliers through the platform, where the operator is responsible for
collecting the consideration.

(2) The authority to collect the specified amount in subsection (1) does not preclude any other
means of recovery from the electronic commerce operator.

(3) The operator must remit the amount collected under subsection (1) to the Government
within ten days after the end of the month in which the collection occurred, following the
prescribed manner.

(4) Operators collecting the amount specified in subsection (1) must electronically submit a
statement within ten days after the end of the month. This statement should include details of
outward supplies (goods or services), including returns, and the amount collected under
subsection (1), as prescribed.

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(5) Operators collecting the amount specified in subsection (1) must electronically submit an
annual statement by December 31 of the following financial year. This statement should
include details of outward supplies, including returns, and the amount collected under the said
subsection during the financial year, as prescribed.

(6) If an operator discovers any omission or incorrect details in the statement, not due to tax
authorities' scrutiny, they must rectify it in the statement for the respective month, subject to
paying interest as specified in subsection (1) of section 50.

(7) The supplier who provided goods or services through the operator can claim credit in their
electronic cash ledger for the amount collected and reflected in the operator's statement under
subsection (4), following the prescribed procedure.

(12) An authority not below the rank of Deputy Commissioner can issue a notice, before or
during proceedings under this Act, requiring the operator to provide details about:

(a) Supplies of goods or services made through the operator during any period.

(b) Stock of goods held by suppliers using the operator's facilities declared as additional places
of business.

(13) Operators receiving a notice under subsection (12) must provide the necessary information
within fifteen working days from the date of receiving the notice.

(14) Failure to provide information as per the notice under subsection (12) may result in a
penalty, not exceeding twenty-five thousand rupees, in addition to any action under section
122.

ANALYSIS

OVERVIEW OF TCS

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TCS, or Tax Collected at Source, is a tax collected by e-commerce operators when they facilitate
the sale of taxable goods or services. It applies when the operator handles the payment,
streamlining the taxation process for online transactions.

Let us now have a look at the statutory provisions relating to TCS

Liability to Collect TCS

Electronic Commerce Operator (ECO):

Every ECO, excluding agents, is mandated to collect Tax at Source (TCS) on the net value of
taxable supplies made through its platform.

TCS Rates

Intra-State Taxable Supplies: TCS rate is 0.5% of the net value.

Inter-State Taxable Supplies: TCS rate is 1% of the net value.

Example: Suppose a certain product is sold at Rs. 1,120 [including GST @12%] through an
Operator by a supplier. The operator would collect tax @ 1% of the net value of Rs. 1,000 i.e.
Rs.10 in case of interState supplies.

NET VALUE OF TAXABLE SUPPLIES

The aggregate value of taxable supplies, excluding returns, encompasses all goods and services
supplied by registered persons through an operator. Notably, services listed under section 9(5)
of the CGST Act, such as transportation, accommodation, and certain house-keeping services,
fall outside the purview of this calculation. Additionally, specific restaurant services are
exempted unless provided by establishments at specified premises.

Deposit of TCS by ECO to Government

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The Electronic Commerce Operator (ECO) must deposit the Tax Collected at Source (TCS)
amount to the Government Treasury within 10 days after the end of the month in which the
collection occurred.

Registration10 [Rule 12 of CGST Rules, 2017]

If someone needs to deduct tax under section 52, they apply for registration electronically. The
officer verifies and approves it within 3 days. If the person is no longer required to deduct tax,
the officer can cancel the registration following specified procedures in Rule 22 of the CGST
Rules.

Filing of Monthly & Annual Statements by ECO11

Electronic Commerce Operators (ECOs) must file monthly statements (Form GSTR 8) within 10
days after each month, detailing outward supplies, returns, and TCS amounts. Additionally, an
Annual Statement (Form GSTR 9B) is required by December 31 of the following financial year.
The Commissioner can extend the deadlines for filing these statements.

Notice to the Operator seeking details

If an officer (Deputy Commissioner or higher) issues a notice to an operator, asking for details
like the volume of goods, stock in warehouses, etc., the operator must provide the information
within 15 working days. Failure to comply can lead to penalties under section 122, including a
fine of up to Rs.25,000.

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