GST-TDS @2% on supply made to Government entities w.e.f 1st Oct 2018

Arjuna (Fictional Character): Krishna TDS is being made applicable under GST Law from 1st October 2018. What is this new Provision now?

Krishna(Fictional Character): Arjuna, TDS is not new for taxpayers. TDS is applicable in Income tax Also TDS was applicable under VAT Act. But under VAT it was applicable only for few transactions like payment made to Contractors for construction services. Now under GST, it is made applicable for all supply of taxable goods or services or both, between specified taxpayers.

It should be noted that upto 30th June 2017 TDS under VAT was there but From 1st July 2017 upto 30th sept 2018, there had been no TDS in GST.

Arjuna: What is TDS?

Krishna: TDS means Tax Deducted at Source. It is deducted at certain percentage by the recipient on the amount payable by the receiver on goods/services to the supplier. The collected tax would be  revenue for the government.

Arjuna: Who needs to deduct TDS?

Krishna:  Arjuna, section 51 of the CGST Act,2017 prescribes the authorities who need to deduct tax, which are as follows-

(a) A department or an establishment of the Central Government or State Government; or

(b) Local authority; or

(c) Governmental agencies; or

(d) Such persons or category of persons as may be notified. On 13th September 2018, vide Notification-50/2018-Central tax the following were specified-

(i) An authority or a board or any other body which has been set up by The Parliament or a State Legislature or by any government, where 51% equity or more ( i.e control) is owned by the government.

(ii) Society established by the Central Government or the State Government or a Local Authority under the Societies Registration Act, 1860 (21 of 1860);

(iii) public sector undertakings.

Arjuna: On what transaction TDS needs to be deducted and at what rate?

Krishna:  TDS is to be deducted @2%(IGST) for inter-state transaction (if Intra state then : 1% CGST, 1% SGST) from the amount payable to the supplier of  taxable goods/services, where the total value of such supply, under a contract, exceeds 2,50,0000 rupees (excluding the amount of Central tax, State tax, Union Territory tax, Integrated tax and cess indicated in the invoice).

Also it is to be noted that TDS would not be deducted if the Supplier, as well as the place of supply, are in the same state but the recipient is located in other states.  

For Ex. If – (i)The supplier, place of supply and the recipient are in Maharashtra i.e in same state. Then this would be Intra-State supply and TDS would be deducted by the recipient.

(ii) If Supplier is of Maharashtra, place of supply and the Location of the recipient is say Delhi, then this will be an Interstate transaction and TDS shall be deducted.

(iii) But If Supplier is of Maharashtra, place of supply is also Maharashtra but the Location of the recipient i.e  Deductor is say Delhi, then TDS shall Not be deducted.

Arjuna: On what amount TDS is to be deducted?   

Krishna:   Arjuna, TDS would be deducted when the total value of taxable supply exceeds Rs.2.5 lakhs under a single contract. This value shall exclude taxes & cess leviable under GST.

For eg (1). If the contract is made of Rs.3 Lakhs for the supply of taxable services and exempt goods.Say the Value of taxable supply is 2 Lakhs and the taxable value of exempt supply is 1 Lakhs.

No TDS would be deducted on this contract as Taxable Value of supply is not Greater than 2.5 Lakhs.

Arjuna: Krishna, are there any other transactions on which TDS liability would not be attracted?  

Krishna: Yes Arjuna, Some other transactions are as-

1. Where the payment relates to a tax invoice that has been issued before 01.10.2018.
2. Where any amount was paid in advance prior to 01.10.2018 and the tax invoice has been issued on or after 01.10.18, to the extent of advance payment made before 01.10.2018.
3. Where the tax is to be paid on reverse charge by the recipient i.e. the deductee.

Arjuna: Krishna, What lesson the taxpayer should take from this?  

Krishna: Arjuna, the provisions of TDS are bit tedious. The taxpayer should take due care while entering into contracts with the Government. We would discuss the Provisions of registration, Returns and penalty in relation to TDS in the next article.