The Central Board of Indirect Tax and Customs (CBIC) issued a statement on Friday, clarifying that GST will not be levied on items and supply prices with “tax collected at source” or TCS. This will come as a GST relief for traders, which can be passed to consumers by removing the “tax on tax” confusion.

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Earlier on December 31, 2018 – the CBIC had issued a circular to traders directing them that “GST should be levied on the entire amount of purchase including the amount added due to tax collected at source (TCS)”. This had led to confusion among traders about whether to add GST on the prices that had TCS levied, creating a tax on tax situation. As the dust settled over this confusion, the CBIC rolled out a clarification over two months later that “tax collected at source by dealers- over and above the value of the goods sold – and paid to the government on behalf of the consumer is not subject to GST”.

This exempts a number of supplies used by manufacturers, giving a big relief, especially to the automobile sector – as TCS is usually applied some 10 items – most of which are cars worth more than Rs 10,00,000 and scrap articles. So for example if an individual buys a car costing more than Rs 10 lakh, they are liable to pay a 1% TCS on the ex-showroom price under the Income Tax Act, but it can be exempted if the buyer is already paying income tax as per norms to avoid paying tax on tax. The automotive sector has welcomed the clarification on an aspect that the government was “quite apprehensive of litigation”.

In an entirely different matter, the CBIC also clarified about the issue of GST levy on “buy one get one free” and “buy more, save more” promotional schemes usually offered by FMCGs. The CBIC statement implied that traders will not be denied for tax credits for sourcing goods that are eventually given away free under discount schemes like “buy one, get one free”.

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