How to account for TDS and TCS under GST and Income Tax on Lead Scrap Purchase- Finance Ministry issued guidelines
With effect from 10th October 2024, Tax Deducted at Source (TDS) under Goods and Services Tax (GST) has been implemented. This system is analogous to TDS under Income Tax, with a TDS rate set at 2% of the taxable value. Unlike Income Tax, the credit of TDS deducted by the buyer will be available monthly, reflected in the cash ledger.
Accounting Procedure Guidelines
1. Introduction to TDS under GST
With effect from 10th October 2024, Tax Deducted at Source (TDS) under Goods and Services Tax (GST) has been implemented. This system is analogous to TDS under Income Tax, with a TDS rate set at 2% of the taxable value. The breakdown of this rate is as follows:
- For intra-state purchases: 1% Central Goods and Services Tax (CGST) and 1% State Goods and Services Tax (SGST).
- For inter-state purchases: 2% Integrated Goods and Services Tax (IGST).
- GST TDS Registration and Credit
Entities that deduct TDS under GST must obtain a separate registration number, similar to the Tax Deduction and Collection Account Number (TAN) under Income Tax. Unlike Income Tax, the credit of TDS deducted by the buyer will be available monthly, reflected in the cash ledger. This credit can be utilized to discharge tax liabilities or claimed as a refund without having to wait for the assessment year, as is the case under Income Tax.
- Monthly Filing of GSTR-7
Form GSTR-7 must be filed monthly, no later than the 10th of the subsequent month, under the designated registration number. Alongside this filing, the TDS liability for the month must be discharged. This process is similar to the Income Tax requirement of filing Form 26Q quarterly and discharging TDS liabilities by the 7th of each month.
- Issuance of GSTR-7A Certificate
Following the issuing of Form 16A, which serves as proof of TDS deposited to the Central Government under Income Tax, a similar certificate in Form GSTR-7A must be issued monthly under GST after filing Form GSTR-7.
- Exemption for Metal Scrap Imports
TDS under GST is not applicable to the import of metal scrap, as the seller is located outside India and is not registered under GST.
- Continuation of Income Tax Provisions
The existing provisions for TDS and Tax Collected at Source (TCS) under Income Tax will continue to apply without alteration.
- Implementation in ERP
A total of six ledger accounts will be created in the Enterprise Resource Planning (ERP) system for both entities involved in metal scrap transactions:
- CGST TDS Payable (1%)
- SGST TDS Payable (1%)
- IGST TDS Payable (2%)
- CGST TDS Recoverable (1%)
- SGST TDS Recoverable (1%)
- IGST TDS Recoverable (2%)
The first three payable accounts will be linked to purchase transactions, as TDS must be deducted during purchase bill entry. The latter three recoverable accounts will be associated with sales transactions, allowing for the recovery of TDS deducted by the seller under GST.
EXAMPLES FOR CLARIFICATION
Example 1: Form 27C Not Accepted by the Seller
Scenario: Entity ABC purchases scrap for INR 10,00,000 from a registered seller who does not accept Form 27C.
Billing Details:
- Basic Value: INR 10,00,000
- GST: INR 1,80,000
- TCS under Income Tax @ 1%: INR 11,800
- Total Value: INR 11,91,800
Payment Calculation:
- TDS under GST: 2% of INR 10,00,000 = INR 20,000.
- Net Payment: INR 11,71,800.
Entity ABC will deposit the INR 20,000 TDS to the Central Government by 10th November 2024, along with Form GSTR-7.
Example 2: Form 27C Accepted by the Seller
Scenario: Entity ABC purchases scrap for INR 10,00,000 from a registered seller who accepts Form 27C.
Billing Details:
- Basic Value: INR 10,00,000
- GST: INR 1,80,000
- Total Value: INR 11,80,000
Payment Calculation:
- TDS under GST: 2% of INR 10,00,000 = INR 20,000.
- TDS under Income Tax u/s 194Q: 0.10% of INR 10,00,000 = INR 1,000.
- Net Payment: INR 11,59,000.
Example 3: High-Seas Purchases and Sales
Scenario: Entity ABC purchases scrap for INR 10,00,000 from a registered seller under high-seas, before clearance for home consumption.
Billing Details:
- Basic Value: INR 10,00,000
- GST: INR 0
- Total Value: INR 10,00,000
Payment Calculation:
- TDS under GST: 2% of INR 10,00,000 = INR 20,000.
- TDS under Income Tax u/s 194Q: 0.10% of INR 10,00,000 = INR 1,000.
Example 4: Inter-Unit Sales and Purchases of Scrap
Scenario: Entity ABC1 sells scrap for INR 10,00,000 to Entity ABC2. Although both entities share a single PAN under Income Tax, they are treated as distinct entities for GST purposes due to separate GSTINs.
Billing Details:
- Basic Value: INR 10,00,000
- GST: INR 1,80,000
- Total Value: INR 11,80,000
Payment Calculation:
- TDS under GST: 2% of INR 10,00,000 = INR 20,000.
- Net Payment: INR 11,60,000.
There are no TDS or TCS provisions under Income Tax for these inter-unit transactions since both entities are considered separate for GST compliance.
Conclusion:
In conclusion, the implementation of Tax Deducted at Source (TDS) under Goods and Services Tax (GST) as of October 10, 2024, introduces a structured framework for tax deduction akin to the provisions under Income Tax, with a uniform rate of 2% on taxable values for both intra-state and inter-state transactions. Entities that engage in TDS deductions must secure a specific registration and are afforded the benefit of immediate credit in their cash ledgers, which can be utilized against tax liabilities or claimed for refunds efficiently, overcoming the delays typical of income tax assessments. Compliance involves a monthly filing of Form GSTR-7 along with the discharge of TDS liabilities, and the issuance of GSTR-7A certificates parallels the existing mechanisms found in Income Tax. Notably, the exemption from TDS for metal scrap imports, due to the seller's non-resident status and lack of GST registration, reinforces the targeted nature of the TDS provisions. Furthermore, the continuity of Income Tax TDS provisions emphasizes the need for entities to adapt within a dual compliance framework. Overall, the integration of six ledger accounts within ERP systems underscores the operational adjustments necessary for seamless transactions under this new regime, especially in dealings related to metal scrap, while maintaining the integrity of tax compliance across different tax codes.