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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