How a Surat Textile Trader Resolved a TCS and GSTR-2B Discrepancy on Export Supplies

TL;DR

A Surat-area textile and fabric exporter discovered that TCS was being deducted at the old rate on export proceeds, even though the transaction was exempt from GST. The excess TCS was not appearing as a credit in GSTR-2B. The fix required amended returns, a corrected TCS process, and a GSTR-2B reconciliation run.

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The TCS provisions under §206C(1G) of the Income Tax Act require sellers to collect tax at source on receipts from foreign exchange transactions. The threshold for TCS on foreign remittances was significantly increased from ₹5 lakh to ₹50 lakh per year from 1 October 2023.

For textile and fabric exporters in Surat, the TCS issue is a persistent compliance trap. Export supplies are exempt from GST, but TCS under the Income Tax Act is a separate obligation tied to the receipt of foreign exchange.

What Was Happening

The business had been receiving export proceeds through banking channels. The bank’s system was deducting TCS and issuing a TCS certificate in Form 27EQ.

The problem was that export supplies are exempt from GST — there is no GST on an export of fabric. So there should be no input tax credit claimed in the buyer’s GSTR-2B for this transaction either.

The GSTR-2B mismatch was a signal that something was wrong. When the books were pulled apart:

One — TCS was being deducted on an exempt supply. The TCS certificate can be used to claim income tax credit; it cannot be used as GST input tax credit because there is no GST on the transaction.

Two — the accounting system had been carrying the TCS amount as a receivable. For GST purposes, this was not a valid ITC claim.

Three — for two quarters, the old TCS rate was still being applied. When the threshold changed in October 2023, the bank’s system had not been updated immediately.

The Resolution Process

First: the GSTR-2B reconciliation. Every purchase invoice was pulled from the GST portal and matched against the purchase register. The ITC claims that did not have corresponding GSTR-2B entries were identified and reversed.

Second: the TCS refund application. The excess TCS deducted in the two quarters following the rate change was identified. An application was filed with the Income Tax Department for refund of the excess TCS.

Third: the process fix. The business’s bank was engaged to ensure the TCS deduction was calibrated to the correct rate going forward.

Fourth: amended GSTR-1 and GSTR-3B. Amended returns were filed to remove the invalid ITC claims.

What Other Textile and Export Businesses in Gujarat Should Check

Download GSTR-2B for the last four quarters and compare every ITC claim against it. If you are claiming ITC based on a TCS certificate but the amount does not appear in GSTR-2B, the first question is whether the supply itself was GST-able or exempt. For export supplies, the answer is almost always exempt.

For businesses in Surat, Bharuch, and Ahmedabad involved in the textile supply chain, a periodic GSTR-2B reconciliation — at least quarterly — is the cheapest way to catch these mismatches before they become notice-level problems.

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FinTax24 helps Surat and South Gujarat textile traders, exporters, and job workers manage GST filing, TCS reconciliation, and GST notice response. Talk to us on WhatsApp for a GST filing health check.