TDS and TCS under GST: A plain-English explanation

Most business owners are familiar with TDS under the Income Tax Act. But GST has its own version of TDS (Tax Deducted at Source) and TCS (Tax Collected at Source). While they sound complicated, the basic idea is very simple: the government wants to catch tax evaders by forcing the person making the payment to withhold a small slice of tax upfront.

What is TDS under GST?

Normally, if you sell goods worth ₹1,00,000 to a customer, they pay you ₹1,00,000 plus GST. You then deposit the GST to the government.

But if your customer is a Government Department, a PSU, or a local authority, and the contract value is over ₹2,50,000, they are required to deduct 2% TDS (1% CGST + 1% SGST) from your payment. They will pay this 2% directly to the government on your behalf.

Don't worry, you don't lose this money. The 2% deducted will show up in your GST electronic cash ledger, and you can use it to pay your final GST liability.

What is TCS under GST?

TCS is specifically designed for E-commerce operators like Amazon, Flipkart, or Swiggy.

If you are a seller on Amazon, when a customer buys your product, they pay Amazon. Before Amazon transfers that money to your bank account, they are required by law to collect a 1% TCS (0.5% CGST + 0.5% SGST) and deposit it to the government.

Just like TDS, this TCS amount is credited to your GST cash ledger, which you can claim when filing your returns.

How to Claim the Credit

To claim the money that was deducted from you, you have to accept the TDS/TCS details on the GST portal. The government provides a specific return form (TDS and TCS credit received) which auto-populates based on what the deductor filed. Once you accept it, the amount is instantly added to your cash ledger balance!