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Provisions for tax to be deducted at source under GST Act

CA Somil Bhansali  
on 13 April 2017

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 The Section 51 of the GST Act makes provisions relating to Tax deducted at source. 

The essential ingredients are as follows :

(a) Obtaining of Registration
(b) The tax will be deducted on supplies made to:

(i) a department or establishment of the Central or State Government, or
(ii) Local authority, or
(iii) Governmental agencies, or
(iv) such persons or category of persons as may be notified, by the Central or a State Government on the recommendations of the Council.

(c) The tax shall be deducted when payments are made to the supplier
(d) The value of supply under a contract shall exceed Rs. 2.5 Lakhs.
(e) The procedures for deduction of tax, deposition of tax, issuance of certificate, etc.
(f) Furnishing of Returns

The detailed explanation of the above points is as follows :

(a) Obtaining of Registration

As per Rule 5 of Registration Rules, any person who is required to deduct tax in accordance with the provisions of section 51 shall electronically submit an application, duly signed, in FORM GST REG-07 for grant of registration through the Common Portal, either directly or from a Facilitation Centre notified by the Commissioner.

The proper officer may grant registration after due verification and issue a certificate of registration in FORM GST REG-06 within three working days from the date of submission of application.

Where proper officer is satisfied upon an enquiry or pursuant to any other proceeding under the Act  that the person is no longer liable to deduct tax at source under section 51 then the said officer may cancel the registration and such cancellation shall be communicated to the said person in FORM GST REG-08.

(b) Specified Persons

The section 51(1) provides that a department or establishment of the Central or State Government ,Local authority  and Governmental agencies are liable to deduct tax at source.

Further, section provides that the Central Government or the State Government has the power to specify such person or a category of such person as may be notified on recommendation of the council who shall deduct the tax at source.

(c) The tax shall be deducted when payments are made to the supplier

The section 51 (1) sates that liability to deduct the tax arises when the payment is made or credited to the supplier of taxable goods or services. This section does not uses the words ‘where payment is made or credited to the supplier whichever is earlier’. But it appears that the deduction will have to be made whenever one of the event take place.

(d) The value of supply under a contract shall exceed Rs. 2.5 Lakhs.

The specified persons shall deduct tax where value of supply under a contract shall exceed Rs. 2.5 Lakhs. The explanation attached to section 51(1) of the Act further provides that the value of supply shall be considered as an amount excluding the tax amount (i.e. excluding central tax, State tax, Union territory tax, integrated tax and cess indicated in the invoice).

For Example: If the tax invoice amount is Rs 3,00,000/- out of which tax amount is say  70,000.Therefore value of supply of goods is 2,30,000/- which is below 2,50,000/-. Therefore in this case no deduction shall be made.

(e) The procedures for deduction of tax, deposition of tax, issuance of certificate, etc

i. The section 51(2) provides that the amount deducted by the specified person shall be paid to the credit of the Government within 10 days after the end of the month in which such deduction is made.

ii. The section 51(3) provides that the person deducting the tax after making payment shall furnish a certificate mentioning therein details as follows :

  • the contract value,
  • rate of deduction,
  • amount deducted,
  • amount paid to the appropriate Government and
  • such other particulars as may be prescribed

iii. The section 51(4) further provides for levy of late fees on the deductor. Where a certificate is not issued then deductor shall pay, by way of a late fee, a sum of one hundred rupees per day from the day after the expiry of such five days period until the failure is rectified, subject to a maximum amount of five thousand rupees.

For Example: If tax has been paid to credit of the Government for the month of July 2017 on 10/08/2017 then certificate shall be issued by the deductor on or before 15/08/2017. If the certificate is not issued by that date then the deductor will be liable for payment of late fee of Rs. 100 per day from 16/08/2017 that is on day after expiry of 5th day until the failure is rectified. The section further provides that the amount of late fee shall not exceed Rs. 5000.

iv. The section 51 (5)  provides that the supplier shall claim the credit in electronic cash ledger of the tax deducted by specified person, provided the tax so deducted has been reflected in the return of the deductor in monthly return filed under section  39 of the GST Act.

v. The section 51(6) provides that if  the person after deduction of tax fails to pay to the credit of the Government the amount so deducted, then he shall be liable to pay interest at the rates notified in addition to the tax deducted.

vi. Section 73 or 74 of the Act makes provision for procedures to be followed for recovery of tax not paid or short paid or erroneously refunded. The provisions made under section 73 or 74 will be applicable for recovery of tax amount in default by the person under this section by virtue of the provisions of section 51(7) of the GST Act.

vii. The procedure for refund of tax excess deducted is given in section 54 of the Act. Therefore where any excess tax has been deducted under this section then it has to claimed as refund in the manner as prescribed under section 54 of the GST Act.

(f) Furnishing of Returns: The tax deductor is required to furnish the return in form GSTR-7 electronically.


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