Practical GST Compliance Checklist for TDS & TCS

GST

Practical GST Compliance Checklist for TDS & TCS

GST

The framework of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) under GST has evolved into a critical compliance mechanism for tracking transactions and ensuring tax discipline. While both provisions became operational from 01 October 2018, a major expansion was introduced effective 10 October 2024, extending TDS applicability to metal scrap transactions (Chapters 72–81) in B2B dealings.

1. Legal Framework and Evolution

TDS and TCS are embedded in the GST law as follows:

  • Section 51 of the CGST Act, 2017 → Governs TDS
  • Section 52 of the CGST Act, 2017 → Governs TCS
  • Relevant Rules:
    • Rule 66 → TDS compliance
    • Rule 67 → TCS compliance

Both provisions were notified via Notification Nos. 50/2018 & 51/2018 (13-09-2018) and made effective from 01-10-2018.

 

New Development (2024)

  • Notification No. 25/2024 – Central Tax (09-10-2024) expanded TDS scope to:
    • Metal scrap transactions (Chapters 72–81)
    • Applicable in B2B transactions between registered persons

2. Section 51 TDS – Core Applicability

2.1 Who is Required to Deduct?

TDS applies primarily to Government-linked entities, including:

  • Central & State Government departments
  • Local authorities
  • Government agencies
  • PSUs
  • Authorities/Boards with ≥51% Government control
  • Societies established by Government

👉 These entities must mandatorily obtain TDS registration (REG-07) irrespective of turnover.

2.2 Registration Requirements (REG-07)

  • TAN is mandatory under the Income-tax Act
  • Separate GSTIN is issued for TDS (distinct from regular GSTIN)
  • Recommended: Maintain separate accounting/ERP tagging for TDS transactions

2.3 When is TDS Applicable?

  • TDS must be deducted where:

    • Supply is taxable
    • Contract value exceeds ₹2,50,000 (excluding GST)
    • Payment is made to supplier

     

  • Key Exclusion:

    No TDS if:

    • Supplier location and place of supply are in a different State than recipient’s GST registration
      ➡ Prevents unusable tax credit

2.4 Rate and Calculation

  • Rate: 2% on taxable value
    • 1% CGST + 1% SGST (intra-state)
    • 2% IGST (inter-state)

✔ Always exclude GST and cess from base value

3. New TDS on Metal Scrap (Effective 10-10-2024)

3.1 Scope of Coverage

Applies to:

  • Metal scrap under Chapters 72–81
    • Iron & steel scrap
    • Copper, aluminium scrap
    • Lead, zinc, tin scrap

❌ Not Applicable:

  • Plastic scrap (covered under Chapter 39)

3.2 Who Must Deduct?

  • Any registered buyer purchasing metal scrap from a registered supplier
  • Applies even outside Government entities

3.3 Threshold & Rate

  • Threshold: ₹2,50,000 per contract (excluding GST)
  • Rate: 2% (same as standard TDS)

3.4 Practical Insight

Even if invoices are split below ₹2.5 lakh,
➡ TDS still applies if overall contract value exceeds threshold

4. TDS Compliance Workflow

Step-by-Step Checklist:

  1. Identify applicable transactions
  2. Verify taxable supply
  3. Check threshold limit
  4. Validate place-of-supply condition
  5. Compute TDS (2%)
  6. Deduct at earlier of:
    • Payment OR
    • Book entry
  7. Deposit TDS within 10 days from month-end
  8. File GSTR-7
  9. Issue GSTR-7A certificate

Interest & Penalty Exposure

  • Interest: 18% for delayed payment
  • Late fee applicable for non-compliance

5. Credit Mechanism for Suppliers

  • TDS appears in supplier’s Electronic Cash Ledger
  • Can be used for:
    • Output tax liability
    • Interest / penalty payments

Best Practice:

Monthly reconciliation between:

  • GSTR-7 filings
  • Vendor records
  • Cash ledger entries

6. Section 52 TCS – E-Commerce Operators

6.1 Who is Covered?

Applies to:

  • E-commerce operators (ECOs) collecting payment on behalf of suppliers

6.2 Scope

  • Applicable on net taxable supplies
  • Excludes:
    • Exempt supplies
    • Non-GST supplies

6.3 Rate

  • 1% on net taxable value
    • 0.5% CGST + 0.5% SGST
    • 1% IGST

6.4 Compliance Steps

  • Identify taxable supplies
  • Compute net value (after returns)
  • Collect TCS
  • Deposit by 10th of next month
  • File GSTR-8
  • Ensure supplier visibility of credits

7. Key Practical Challenges

Common Litigation Areas:

    • Inclusion of reimbursements in TDS base
    • Place-of-supply related disputes
    • ECO vs agent classification
    • Scrap classification under tariff headings

8. Internal Compliance Checklist

TDS (Govt + Scrap)

  • Confirm deductor eligibility
  • Verify taxable supply
  • Apply ₹2.5 lakh threshold
  • Check inter-state exclusion
  • Deduct & deposit on time
  • File GSTR-7
  • Reconcile with vendors

TCS (E-Commerce)

  • Confirm ECO status
  • Exclude non-taxable supplies
  • Compute net taxable value
  • Collect & deposit TCS
  • File GSTR-8
  • Reconcile supplier credits

Read More: Mandatory Form 41 for DTAA Benefits under Section 159(8) – A Complete Guide

9. Conclusion

The GST framework for TDS and TCS now operates across three distinct pillars:

  1. Government TDS (Section 51) – Contract-based compliance
  2. E-Commerce TCS (Section 52) – Platform-based tracking
  3. Metal Scrap TDS (New) – Industry-specific expansion

With the inclusion of scrap transactions, the compliance burden has widened significantly, especially for manufacturing and recycling sectors.

👉 Businesses must prioritise:

  • Accurate classification
  • Robust ERP configuration
  • Timely filings
  • Continuous reconciliation

A disciplined approach ensures smooth credit flow, reduced disputes, and audit readiness under GST.

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GST Changes in GSTR-3B Effective from January 2026:

GSTR-3B

GST Changes in GSTR-3B Effective from January 2026:

GSTR-3B

From the January 2026 tax period onwards, the GST portal has rolled out several important system-level changes in GSTR-3B filing. These updates aim to improve accuracy in interest computation, enhance transparency in tax reporting, allow more efficient utilisation of Input Tax Credit (ITC), and ensure recovery of interest even after cancellation of GST registration.

In essence, the GST return system is becoming more intelligent and automated—but this also means taxpayers must exercise greater care while filing returns.

1. Accurate Interest Calculation on Delayed GSTR-3B Filing

Until now, interest calculation on late filing of GSTR-3B often led to disputes and confusion, especially because the system did not fully factor in the available balance in the Electronic Cash Ledger.

What changes from January 2026?

  • The GST portal will automatically compute interest after adjusting the minimum cash balance available from the due date up to the actual payment date.

  • The calculated interest will be auto-populated in GSTR-3B.

  • Taxpayers cannot reduce the auto-filled interest amount.

  • However, if the actual interest payable as per self-calculation is higher, taxpayers are expected to increase the amount voluntarily.

This means the portal displays the minimum interest payable, but the legal responsibility for correct payment still rests with the taxpayer.

2. Auto-Disclosure of Past Period Tax Paid in Current Return

A common issue faced by businesses is the delayed reporting of invoices in GSTR-1, resulting in tax being paid in a later GSTR-3B. This often makes it difficult to identify which month’s liability is being discharged.

GSTR-3B

What’s new?

  • The GST portal will now automatically reflect a breakup of tax pertaining to earlier periods but paid in the current GSTR-3B.

  • This enhances clarity in:

    • Departmental audits

    • GST notices and scrutiny

    • Internal reconciliations and MIS reporting

  • Taxpayers can edit these figures if their records show a higher liability.

This change significantly improves transparency and traceability of tax payments.

3. Greater Flexibility in Utilisation of Input Tax Credit (ITC)

ITC utilisation has long been an area of complexity under GST.

Effective January 2026:

  • Once IGST credit is fully exhausted, taxpayers can utilise CGST and SGST credit in any order for payment of IGST liability.

  • Earlier rigid sequencing often forced unnecessary cash outflows, despite available credit balances.

This relaxation allows more efficient credit management and improves working capital for businesses.

4. Recovery of Interest Through Final Return (GSTR-10)

For taxpayers whose GST registration is cancelled, delays in filing the last applicable GSTR-3B can still attract interest.

What’s changed?

  • Any such interest liability will now be recovered through GSTR-10 (Final Return).

  • This ensures that interest dues are not left unpaid merely because the registration has been cancelled.

The provision strengthens revenue recovery while closing procedural gaps.

Read More: Budget 2026–27: Indirect Tax Reforms Driving Trade, Manufacturing and Export Growth

Final Thoughts

These GSTR-3B changes reflect a clear shift towards a more automated, transparent, and system-driven GST compliance framework. While the portal will now handle more calculations and disclosures, taxpayers and professionals must remain vigilant.

👉 Auto-filled data should be verified, not blindly accepted.
👉 Regular reconciliation between GSTR-1, GSTR-3B, books of accounts, and ITC statements remains critical.
👉 Timely filing continues to be the most effective way to avoid interest, notices, and compliance stress.

As GST compliance evolves, proactive review and disciplined filing will separate smooth compliance from avoidable litigation.

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56th GST Council Meeting: Tax Reforms and Policy Changes

GST Council Meeting

56th GST Council Meeting: Tax Reforms and Policy Changes

GST Council Meeting

The 56th GST Council Meeting, held on 3rd September 2025, has set the stage for the next phase of India’s indirect tax system. With the objective of simplifying the GST regime, rationalizing tax rates, and aligning policies with global trade practices, the Council has rolled out several key measures that will impact businesses across industries.

Most of the recommendations will take effect from 22nd September 2025, giving businesses a short window to upgrade systems and prepare for compliance. The reforms are centered around four main pillars:

  1. Simplified GST rate structure

  2. Correction of inverted duty structures

  3. Seamless refund mechanisms

  4. Digital integration for compliance and transparency

GST Council Meeting

1. Revised GST Rate Structure

One of the most significant decisions was the adoption of a simplified three-slab structure, replacing the earlier five-tier system:

  • Merit Rate – 5%: Essential goods & services (e.g., UHT milk, paneer, educational stationery)

  • Standard Rate – 18%: General goods & services

  • De-Merit Rate – 40%: Sin goods (e.g., tobacco, pan masala, luxury vehicles)

Key Outcomes:

  • Inverted duty structure correction in textiles, chemicals, and fertilizers.

  • Lower tax burden on essential goods like milk, paneer, cereals, and stationery.

  • Higher taxation on luxury and sin goods to align with public health and revenue goals.

2. HSN Code Updates for Goods (Effective 22 Sept 2025)

Businesses must update their ERP and invoicing systems with revised HSN codes as per CBIC’s Annexure-I. Some major changes:

HSN CodeGoods DescriptionOld RateNew Rate
0401UHT Milk5%NIL
0406Paneer (pre-packaged)5%NIL
1701/1702Sugar & related products12%5%
1901Infant food/cereals12%5%
5406/5407Man-made fibres & yarn18%12%
8703Electric vehicles18%5%
4901Educational stationery, maps12%NIL
3004Life-saving drugs & devices5%NIL
2711Natural gas12%5%

Sectoral Impact:

  • FMCG: Lower rates to boost consumer demand but requires MRP recalibration.

  • Textiles: Reduction to 12% improves working capital efficiency.

  • Automobile: EVs at 5% GST encourage clean mobility adoption.

  • Healthcare: Life-saving medicines are now tax-free.

3. SAC Code Updates for Services (Effective 22 Sept 2025)

The services sector will also undergo major changes with revised SAC codes. Some notable revisions include:

SAC CodeService TypeOld RateNew RateITC Eligibility
9963Hotel accommodation ≤ ₹7,500/day12%5%Without ITC
9997Beauty & wellness (gyms, salons, yoga)18%5%Without ITC
9971Third-party insurance (goods carriage)12%5%With ITC
9964Air passenger transport (non-economy)12%18%With ITC
9965Goods Transport Agency (GTA)5%12-18%With ITC
9967Pipeline transport5%18%With ITC
9988Job work (printing, pharma, leather)12%5%With ITC
9991Cinema tickets ≤ ₹10012%5%With ITC
9992Waste treatment & biomedical disposal12%5%With ITC
9993Actionable claims (betting, casinos)28%40%With ITC

Key Implications:

  • Hospitality & Wellness: Rates reduced but without ITC, affecting cost structures.

  • Logistics: GTA now has multiple categories requiring precise contract drafting.

  • Gaming: Casinos & betting face higher tax at 40%.

4. Customs & Foreign Trade Policy Impact

The revised GST rates also affect customs and international trade policies.

Key Customs Measures:

  1. Fast-Track Refunds: Priority processing for consignments under ₹1,000.

  2. Provisional Refunds: 90% of inverted duty refunds released upfront.

  3. IGST & Customs Duty Alignment: Harmonization across diamonds, electronics, and textiles.

  4. FTP Synchronization: DGFT notifications will align SEZ, EOU, and Advance Authorisation schemes with new GST rates.

5. Challenges Ahead

Despite the benefits, businesses may face short-term hurdles:

  • Pending legislative amendments in CGST & SGST Acts.

  • ERP and billing system upgrades before 22nd September.

  • Transitional handling of invoices, e-way bills, and reconciliations.

  • Revenue loss concerns for states due to lower rates.

6. Action Plan for Businesses

To ensure compliance and smooth transition, businesses should:

  1. Update ERP & billing systems with new HSN/SAC codes.

  2. Train finance and compliance teams.

  3. Recalculate MRPs and revise contracts.

  4. Reconcile pending refund claims before transitional rules.

  5. Communicate changes across distribution and logistics networks.

GST Council Meeting

FAQs on 56th GST Council Decisions

  • Q1: When do new rates apply? From 22nd September 2025.

  • Q2: What about advances before 22nd September? Section 14 CGST Act applies.

  • Q3: Can ITC be claimed on old inputs? Yes, if used for taxable supplies.

  • Q4: Are insurance services exempt? Yes, life & health insurance are exempt post 22nd September.

  • Q5: New GST rate on EVs? Reduced to 5%.

Read More: GST ITC Reconciliation: Challenges and Solutions for Businesses

Conclusion

The 56th GST Council Meeting marks the beginning of GST 2.0—a simpler, more efficient, and globally aligned tax framework. While the reforms bring relief to consumers and exporters, businesses must act swiftly to reconfigure systems, contracts, and pricing. The transition is not just about rate changes but a paradigm shift in India’s indirect tax ecosystem, aimed at driving long-term competitiveness and sustainable growth.

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