TCS is collected to identify purchasers of high value goods and is adjusted to the income tax payment of these buyers. Under income tax provisions, the seller has to collect Tax at Source (TCS) at a specified rate from purchaser while selling the specified items or services beyond specified limits.
In the end of 2018, the Central Board of Indirect Taxes and Customs (CBIC) came out with a circular vide No. 76/50/2018-GST dated 31.12.2018, which was clarification on valuation methodology in case of TCS under Income Tax Act), which clarified levy charge of GST on total value i.e. inclusion of the TCS as well. In tis circular TCS has been considered as a tax charged separately, which has to be included in the value of supply as per section 15(2) of the GST act.
In protest of this circular the car dealers approached the Court contended that TCS is not the consideration of cars and therefore, GST cannot be included in it. The Kerala High Court has granted a temporary stay on the collection of tax at source under the Goods and Services Tax (GST) as clarified by the circular ibid 76/50/2018 dated 31.12.2018.
In meanwhile CBIC through a Corrigendum dated 7th March, 2019 to Circular No. 76/50/2018-GST dated 31.12.2018 has clarified as follows-
1. Tax collection at source (TCS) is not a tax on goods but an interim levy on the possible “income” arising from the sale of goods by the buyer and to be adjusted against the final income- tax liability of the buyer.
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S.No/ Particulars
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Original circular extract
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Extracts after corrigendum ( Amended)
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Serial No. 5 of the circular vide No. 76/50/2018-GST dated 31.12.2018,
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It is clarified that as per the above provisions, taxable value for the purposes of GST shall include the TCS amount collected under the provisions of the Income Tax Act since the value to be paid to the supplier by the buyer is inclusive of the said TCS.
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2. For the purpose of determination of value of supply under GST, Tax collected at source (TCS) under the provisions of the Income Tax Act, 1961 would not be includible as it is an interim levy not having the character of tax.
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By effect of this circular the CBIC in consultation with CBDT (Central board of direct taxes) has clarified the nature of the TCS i.e. interim levy on the possible income of the buyer not a tax levy by seller. Therefore the value of the supply in such cases will be exclusive of the Tax collected at source.
