On July 10, 2024, the Ministry of Finance issued Notification No. 15/2024-Central Tax. This notification, published in the Gazette of India, introduces a significant amendment to the existing GST regulations by reducing the rate of tax collection at source (TCS) under the Central Goods and Services Tax (CGST) Act, 2017. This change is poised to impact businesses and governmental agencies responsible for deducting TCS under GST.
Key Amendment: Reduction in TCS Rate
The primary change introduced by this notification is the reduction of the TCS rate from 0.5% to 0.25%. This amendment applies to the Notification No. 52/2018-Central Tax (Download) dated September 20, 2018, which originally set the TCS rate at 0.5%.
- Now, CGST-0.25% & SGST-0.25% or IGST-0.5% will be collected as TCS by ecommerce operator from their sellers.
Effective Date
The notification explicitly states that this amendment comes into effect from the date of its publication in the official Gazette of India, which is July 10, 2024.
Implications for Businesses and Government Agencies
The reduction in the TCS rate under GST has several important implications:
- Cash Flow Impact: A lower TCS rate means that businesses will experience a smaller deduction from payments made for supplies, improving cash flow. This is particularly beneficial for small and medium enterprises (SMEs) that often face cash flow constraints.
- Compliance Adjustments: Government agencies and other entities responsible for deducting TCS under GST will need to adjust their systems and processes to reflect the new rate of 0.25%. This requires updating accounting software, contracts, and other relevant documentation.
- Tax Credit for Suppliers: Suppliers, particularly those dealing with government contracts, will have a lower TCS deducted from their payments. This could reduce the time taken for these businesses to claim tax credits and improve their overall tax compliance status.
Context: Understanding Section 52 of the CGST Act
Section 52 of the CGST Act, 2017, mandates the deduction of tax at source for specific transactions, primarily involving government bodies, local authorities, and notified entities. This mechanism was introduced to ensure better tax compliance and minimize the risk of tax evasion. The reduced TCS rate signifies the government’s intent to ease the tax burden and improve liquidity for businesses while still maintaining a check on tax compliance.
Read also: Full Guide of GST issues for E-commerce Marketplaces Sellers
Conclusion
The Notification No. 15/2024-Central Tax marks a notable change in the GST framework by reducing the TCS rate from 0.5% to 0.25%. This amendment is set to improve cash flow for businesses, especially SMEs, and streamline tax deduction processes for government agencies. As businesses and entities adjust to this new rate, it is crucial to stay updated with the latest compliance requirements to ensure seamless transitions and avoid potential legal complications.
