Arjuna (Fictional Character): Krishna, Section 194Q for TDS deduction on the purchase of goods has become effective from 1.7.2021, whereas TCS collection on sale of goods is already applicable from last year from 1.10.2020, but there is confusion regarding the treatment of GST amount while applying the provisions of these sections.
Krishna (Fictional Character): Arjuna, the taxpayer has to consider his method of accounting for the purpose of treatment of GST amount. Also, CBDT has issued circulars for clarifying the confusion related to TDS/TCS on GST.
Arjuna (Fictional Character): Krishna, the provisions of section 194Q and section 206C(1H) are applicable to the buyer and seller respectively if his turnover during the preceding year exceeds Rs.10 crores. Please explain, whether the turnover is to be considered inclusive of GST or exclusive of GST.
Krishna (Fictional Character): Arjuna, The turnover of the preceding year for the purpose of applicability of the above provisions is to be considered as per the method of accounting regularly followed by the deductor/ collector. Thus, if the exclusive method of accounting is followed i.e. GST amount on sales is accounted in a separate account, then GST amount on turnover is not be considered for the limit of Rs.10 crores. On the other hand, if an inclusive method of accounting is followed, then the GST amount is to be included for the limit of Rs.10 crores.
Arjuna (Fictional Character): Krishna, TDS/TCS is to be deducted/ collected u/s 194Q and 206C(1H) respectively, if purchase/ sales to a single party exceed Rs.50 Lacs. Whether the amount of GST is to be included for the calculation of the above limitations of Rs.50 Lacs?
Krishna (Fictional Character): Arjuna, with respect to purchases for the purpose of section 194Q, if the input tax credit is claimed and purchases are recorded exclusive of GST, then GST on purchases is not to be included for calculating the limit of Rs. 50 Lacs. However, if the input tax credit is not eligible to be claimed or has not been claimed and therefore purchases have been recorded inclusive of GST, then GST will be included for calculating the limit of Rs. 50 Lacs.
With respect to sales for the purposes of section 206C(1H), the inclusion of GST will depend on the method of accounting regularly followed by the assessee as mentioned in the previous question.
Arjuna (Fictional Character): Krishna, whether TDS is applicable on the amount of GST in the purchase invoice for the purpose of section 194Q?
Krishna (Fictional Character): Arjuna, TDS u/s 194Q is to be deducted at the time of credit or payment to the seller, whichever is earlier. As per the circular issued by CBDT on 30.6.21 regarding guidelines u/s 194Q, tax shall not be deducted on the amount of GST in the purchase invoice if the same is indicated separately at the time of credit to the account of the seller. But if tax is deducted on a payment basis, i.e in advance then the tax would be deducted on the whole amount as it is not possible to identify the GST component in that amount.
Arjuna (Fictional Character): Krishna, whether TCS is to be collected on the number of sales inclusive of GST or not for the purpose of section 206C(1H)?
Krishna (Fictional Character): Arjuna, CBDT vide circular no.17 date 29.9.2020 has clarified that no adjustment on account of GST is required to be made for TCS collection u/s 206C(1H) as the collection is made with reference to receipt of an amount of sale consideration. Thus, TCS is to be collected on the sales amount inclusive of GST.
Arjuna (Fictional Character): Krishna, What care should be taken by the taxpayer?
Krishna (Fictional Character): Arjuna, the taxpayer should carefully deduct/ collect the TDS/ TCS after giving proper treatment to the amount of GST on purchases/ sales as mentioned above, otherwise will have to face the consequences of non-compliance.