At the advent of Not. No. 50/2018 - Central Tax Dated 13.09.2018, the following exposition has been drawn out to present a comprehensive picture in regards to the law and the practice of deducting tax at source in so far as the Goods and Services Tax.
The exposition has been divided into two parts:
1. The Law surrounding TDS
2. The practice to be followed for necessary compliance with the Law
The above has been elaborated as follows:
1. The Law surrounding TDS:
A. Background: The provisions of tax deduction at source is contained under section 51 of the CGST Act, 2017. The same was held in abeyance and not brought into force. As of 13.09.2018 the Notification No. 50/2018 - Central Tax notified the 1stday of October 2018 to be the day sec. 51 of the CGST Act, 2017 assumes legal force. Section 51 comes under the Chapter X 'Payment of Tax' which deals with the manner of payment of GST to the Government by way of cash or credit etc.
Under the said chapter, sec. 51 places the onus on particular persons under particular conditions to deduct a particular amount of GST from the payment made to the inward suppliers and deposit the same with the Government on the account of such inward supplier along with requisite filing returns and submission of certificates to such inward suppliers.
B. The persons required to comply: Following persons, irrespective of being registered under GST provisions are required to registered specifically for this purpose and would be deducted under GST laws in the Concerned State/ UT (concerned State/ UT: respective state or Union Territory where the deductor registered or situated) as follows:-
a. A department or establishment of the Central Govt. or State Govt.
b. local authority
c. Governmental agencies
d. an authority or a board or anybody, set up by an Act of Parliament or a State Legislature; or established by any Government, and having fifty-one per cent or more participation by way of equity or control, to carry out any function.
e. Society established by the Central Government or State Government or local authority under the Societies Registration Act, 1860
f. Public sector undertakings.
C. Manner and quantum of deduction:
The above-mentioned persons are, hereinafter referred to as deductor, are required to deduct tax at the rate of 1% CGST and 1% SGST on the taxable value of goods or services or both.
a. At the time of payment made or credited to the supplier (deductee) of taxable goods or services or both,
b. Where the total value of supply, under a single contract, exceeds two lakh fifty thousand rupees, the deduction is to be made. i. e. Single contract value above Rs 2.5 Lakh and above.
c. Value for the purpose would be basic taxable value, i. e. excluding CGST, SGST, IGST, UTGST and cess charged.
d. Only when the supplier (deductee) is registered in the concerned state and the place of supply is also inside the concerned state, the deduction is to be made.
D. Compliance procedures:
a. The amount deducted as tax shall be deposited with the Government by the deductor within ten days after the end of the month in which such deduction is made.
b. The deductor shall furnish a certificate to the deductee within five days of crediting the amount so deducted to the Government mentioning therein the contract value, the rate of deduction, the amount deducted, the amount paid to the Government and other particulars.
c. In case of default, the deductor shall be liable to pay a late fee of Rs. 100 under CGST Act, per day subject to a maximum of Rs. 5000/.
d. The deductee shall claim credit, in his electronic credit ledger, of the tax deducted and reflected in the return of the deductor.
e. In case the deductor fails to deposit with the Government the amount deducted as tax, he shall be liable to pay interest @ 18 % p.a. in addition to the amount so deducted.
E. Some key points:
a. Where the value of supply credited prior to 01.10.2018 but payment made on or after 01.10.2018, or vice versa, it seems that in both the cases TDS to be deducted.
b. The supply must be taxable under the law. i. e. exempted supplies does not attract TDS.
c. From the law, it seems that IGST transactions are beyond the preview of current compliances.
d. In case the supplier is not registered, it seems that the TDS may not be made.
e. The single contract value of greater than Rs 2.5 Lakh would be considered, even though the contract period may extend to different tax periods and year. TDS would be deducted at the time of each invoice or payment.
f. Further, it can be reasonably derived that once the TDS made on credit basis, no TDS at the tie of respective payment. However, when a particular payment could not be linked to a single invoice, suitable co-relation to be maintained to safeguard the correctness of time of deduction.
g. Mr A of Delhi got an order from WB government to supply certain goods. Mr A asks its supplier Mr B (registered at Kolkata) to supply the goods on a bill to ship to model to WB Government. While making payment WB Government may not deduct TDS, as the supplier is not registered in WB.
h. Indian Oil Ltd. (Delhi) has awarded the contract to M/S A Ltd, of Delhi to provide work contract services at Odisha. Hence in this case TDS by Indian Oil Ltd, at Delhi need not be made. As the Place of supply is Odisha.
i. NALCO Ltd. A PSU, while making payment for the advocate services may not deduct TDS assuming the advocate is not registered
2. The practice to be followed for necessary compliance with the Law:
Given below is in a point-wise format the steps to be undertaken by a concern to ensure necessary compliance with the provisions of TDS.
2.1 Step: 1
Every person liable to deduct tax under section 51, shall apply for a registration electronically in form GST REG-07. After due verification, the proper officer shall issue a certificate in form GST REG-06 within three days of application.
Deduct GST @ 1% CGST & 1% SGST (i.e. as correctly charged by the inward supplier in his Tax Invoice) from the Basic Value of the Bill. The rate of TDS is to be computed on the value of supply excluding the GST amount.
The deduction is to be at the time of payment to the supplier or crediting his account.
However, two broad conditions for deductions are:
a. The supply should be a taxable supply of goods or services or both.
b. The total value of the contract exceeds Rs. 2,50,000/-
The amount that has been so deducted is to be deposited with the respective Government within 10 days from the end of the month in which such deduction is made. Such payment to the Govt. shall be made by debiting the electronic cash ledger. Further, the deductor is required to furnish a return in form GSTR-7 electronically along with all necessary details. The return cannot be filed without full payment of the liability. Copy of form GSTR-7 has been enclosed.
Note: The details that are furnished by the deductor in his form GSTR-7, shall be made available electronically to each of his suppliers in Part C of Form GSTR-2A on the common portal.
Within five days of payment of the deducted amount to the Govt., the deductor shall furnish to the deductee a certificate as mentioned in point no. 1.5 above.
Such certificate shall be made available electronically to the deductee on the common portal in form GSTR-7Aon the basis of the return filed by the deductor.
#The above exposition is the product of our theoretical analysis and interpretation of the law and is based on the position of law as on the date of this note#