Suggestions to Simplify GST RCM and Income Tax TCS Compliance

Improving the “Ease of Doing Business” involves addressing key compliance challenges in GST and Income Tax. For GST under the Reverse Charge Mechanism (RCM), the CBIC GST Portal’s list of services remains outdated, showing only up to serial number 12, despite the list expanding to serial number 16 as of December 2024. Additionally, newer entries like Serial No. 5AA, related to renting residential dwellings to registered persons, are missing. Updating and organizing this list regularly on the portal will streamline compliance. For Tax Collected at Source (TCS) under Section 206C of the Income Tax Act, challenges arise when collecting TCS on advances for bulk material transactions, such as fly ash. These transactions often result in discrepancies between estimated and actual sale values, leading to excess TCS collection. This creates difficulties for customers during tax assessments and adds unnecessary reconciliation efforts for businesses using ERP systems. Suggestions include collecting TCS solely based on sales invoices rather than advances or invoices, simplifying accounting and providing clarity to customers. This approach ensures timely TCS remittance without compromising compliance under evolving GST laws, ultimately enhancing business efficiency and reducing unproductive reconciliation efforts. Implementing these measures can promote smoother tax processes and contribute to GDP growth.

A) Complying with GST Liability under Reverse Charge Mechanism

A) As on date the list of services under Reverse charge mechanism (RCM) is showing list of services up to serial number 12.  However, the list has increased to serial number 16 up to December 2024. Apart from this few insertions were also made in the serial number for example Serial No. 5AA which pertains to “Service by way of renting of residential dwelling to a registered person” is missing from the list presently shown on the CBIC GST Portal.

This means that the said list is not updated on the GST Portal. Also when we search for “list of services under RCM” on the Portal, it is not easily found.

It is suggested to update this “List of Services under RCM” on regular basis and make it available in a “easy to access” way on the CBIC GST portal. This will help in tax compliance with regards to RCM and “Ease of Doing Business”.

B) Tax Collected at Source (TCS) under Income Tax Act 1961

As per section 206C of Income Tax Act, 1961, Every person, being a seller shall, at the time of debiting the amount to Customer or at the time of receipt of such amount from the said Customer, whichever is earlier, collect from the Customer a sum equal to the certain percentage of such amount as income-tax which is called Tax Collected at Source (TCS).

That means as per section 206C the Assessee has to collect TCS from their customer and remit to the government treasury either on receipt of advance or at the time of raising of sales invoice whichever happens earlier.

Especially with regards to section 206C (1H) there are certain trades happening where in the sale value cannot be estimated 100% correctly at the time of entering into contract. For example, Supply of Fly Ash which is kind of a bulk material the weight of the material can be measured only when it is loaded on the Truck. Due to this sometimes the Seller ends up collecting more TCS from its customer. Then it becomes difficult to the customer while providing explanation to his/her Income Tax Assessing officer because as a supplier we collected more TCS from him than actual amount of percentage of the sale value.

Practical Issues:

1. With regards to certain Bulk material exact amount of expected sale cannot be arrived at the time of collecting advance from customers.
2. Proof of TCS collected at the time of advance is not made available to the customer because TCS is generally shown on the Invoice which happens on later date. There is no document generated for showing TCS collected from customer at the time of receiving the advance from customer.
3. Collection of TCS on advances and adjusting that with the Sales Invoices is a practical challenge for organizations which runs on ERP. Hence this amounts to unproductive work of doing reconciliation of such TCS ledgers.

Suggestions:

TCS collections to be made only on Sales Invoices basis instead of Advance or Sales Invoice whichever happens earlier.

Rationale:

1. This will also help in accounting of TCS liability smoothly instead creating a complex accounting of TCS at the time of advance and adjusting them at the time of Sales invoice.
2. As a customer they will also have clarity on how much money is collected from them towards TCS since this information will be available on Invoice.
3. Due to evolving GST Law the Sellers are also bound to issue the sales invoice within specific time. This will not delay the TCS liability getting deposited in the Government treasury.
4. Unproductive efforts involved in complex accounting of TCS liability will be avoided leading to “Ease of Doing Business”

Let us improve “Ease of doing Business” and improve the GDP.