INTRODUCTION
Tax Deduction at Source ("TDS") means that a certain registered person making payment or crediting to the supplier’s account for supply of taxable goods or services or both is required to deduct GST at source if the contract value without taxes exceeds the threshold limit. It is a statutory compliance that needs to be fulfilled by that person, as prescribed in the Act fromtime to time. It is a time-bound process under which a person, called deductor, making payment or giving credit deducts GST at a fixed rate and deposits it with GST department while filing GST return. The deductee can take credit of deduction at source in his ElectronicCash Ledger and the same can be used for payment of tax at the time of filing GST return as per the prescribed procedure.
TDS under GST Law shall be deducted as per the provision of Section 51 of the CentralGoods and Services Tax Act, 2017, Section21 of the Union Territory Goods and Services Tax Act, 2017 and Section 20 of the Integrated Goods and Services Tax Act, 2017, read with Rule 66 of the Central Goods and Services Tax Rules, 2017.
SECTION 51
(1) Notwithstanding anything to the contrary contained in this Act, the Government may mandate,
(a) A department or 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 by the Government on the recommendations of the Council.
(hereafter in this section referred to as "the deductor"), to deduct tax at the rate of one percent from the payment made or credited to the supplier (hereafter in this section referred to as "the deductee") of taxable goods or services or both, where the total value of such supply, under a contract, exceeds two lakh and fifty thousand rupees.
Provided that no deduction shall be made if the location of the supplier and the placeof supply is in a State or Union territory which is different from the State or as the case may be, Union territory of registration of the recipient.
Explanation. – For the purpose of deduction of tax specified above, the value of supply shall be taken as the amount excluding the central tax, State tax, Union territory tax, integrated tax and cess indicated in the invoice.
As per Notification No. 50/2018_Central Tax_13.09.2018 following persons are specified who are required to deduct the TDS as per 51(1)(d).
(a) An authority or a board or any other body,
(i) Set up by an Act of Parliament or a State Legislature; or
(ii) Established by any Government, with 51% or more participation by way of equity or control, to carry out any function.
(b) Society established by the Central Government or the State Government or a Local Authority under the Societies Registration Act, 1860 (21 of 1860).
(c) Public sector undertakings.
(2) The amount deducted as tax under this section shall be paid to the Government by the deductor within ten days after the end of the month in which such deduction is made, in such manner as may be prescribed.
(3) A certificate of tax deduction at source shall be issued in such form and in such manner as may be prescribed.
(4) Omitted.
(5) The deductee shall claim credit, in his electronic cash ledger, of the tax deducted and reflected in the return of the deductor furnished under sub-section (3) of section 39, in such manner as may be prescribed.
(6) If any deductor fails to pay to the Government the amount deducted as tax under subsection(1), he shall pay interest in accordance with the provisions of sub-section (1) of section 50, in addition to the amount of tax deducted.
(7) The determination of the amount in default under this section shall be made in the manners specified in section 73 or Section 74.
(8) The refund to the deductor or the deductee arising on account of excess or erroneous deduction shall be dealt with in accordance with the provisions of section 54.
Provided that no refund to the deductor shall be granted, if the amount deducted has been credited to the electronic cash ledger of the deductee.
RULE 66: FORM AND MANNER OF SUBMISSION OF RETURN BY A PERSON REQUIRED TO DEDUCT TAX AT SOURCE
(1) Every registered person required to deduct tax at source under section 51 (hereafter in this rule referred to as deductor) shall furnish a return in FORM GSTR-7 electronically through the common portal either directly or from a Facilitation Centre notified by the Commissioner.
(2) The details furnished by the deductor under sub-rule (1) shall be made available electronically to each of the deductee on the common portal after filing of FORMGSTR-7 for claiming the amount of tax deducted in his electronic cash ledger after validation.
(3) The certificate referred to in sub-section (3) of section 51 shall be made available electronically to the deductee on the common portal in FORM GSTR-7A on the basis of the return furnished under sub-rule (1).
EFFECTIVE DATE OF TDS IMPLEMENTATION
As per Notification No. 50/2018_Central Tax_13.09.2018, TDS provisions came into force from 1st Day of October 2018.
REGISTRATION AND RETURN
As per section 24 of the CGST Act, 2017, person, who are required to deduct tax at source u/s 51, need to compulsory required to take registration. This is irrespective of the fact that whether the person is separately registered or not. No threshold limit is applicable in this case.
Under sub-section (6) of section 25 of the CGST Act, 2017, a Permanent Account Number(PAN) is a mandatory requirement for obtaining registration. However, it is worth noting that the proviso to the said sub-section allows the use of a Tax Deduction and Collection Account Number (TAN) in place of PAN, which will suffice for registration purposes.
In terms of section 39(3) read with rule 66, every registered person, who are required to deduct tax at source, are required to furnish return in Form GSTR-7 electronically within 10 days after the end of the month in which deduction has been made.
A new sub-section (11) of section 39 has been inserted vide the Finance Act 2023 notified through Notification.No.28/2023_Central Tax_31.07.2023, which restricts a registered person tofile return after expiry of a period of 3 years from the due date of furnishing the return.
CLARIFICATION ON E-INVOICING
As per Section 2(94) of CGST Act, 2017 Registered person means a person who is registered under section 25 but does not include a person having a UniqueIdentity Number.
Provisions of E-invoicing is applicable only to those registered persons whose aggregate turnover in any preceding financial year from 2017-18 onwards exceeds Rs. 5 Crore (w.e.f.01.08.2023) in respect of supply of goods or services or both made to registered person or for exports.
Circular No. 198/10/2023-GST dated 17th July 2023 has been issued to clarify that Government Departments or establishments/ Government agencies/ local authorities/ PSUs, which are required to deduct tax at source as per provisions of section 51 of the CGST/SGSTAct, are liable for compulsory registration in accordance with section 24(vi) of the CGST Act. Therefore, Government Departments or establishments/ Government agencies/local authorities/ PSUs, registered solely for the purpose of deduction of tax at source as per provisions of section 51 of the CGST Act, are to be treated as registered persons under the GST law as per provisions of clause (94) of section 2 of CGST Act. Accordingly, the registered person, whose turnover exceeds the prescribed threshold for generation of e-invoicing, is required to issue e-invoices for the supplies made to such Government Departments or establishments/ Government agencies/ local authorities/ PSUs, etc under rule 48(4) of CGSTRules.
VALUATION OF SUPPLY
For the purpose of deduction of tax, the value of supply shall exclude the taxes leviable under the GST namely CGST, SGST, UTGST, IGST and Cess.
Meaning thereby tax will be deductible on only taxable value of the supply. Tax shall not be deducted on taxes shown in the tax invoice.
In addition, no tax shall be deducted on value of exempted goods or services or both even ifthe exempt and taxable supplies are shown together in a tax invoice.
e.g., M/s Ram Brothers have supplied printed material valued at 2,10,000/- along with Books valued at 1,00,000/- to the Department of Govt. and a tax invoice has been raised for 3,10,000/- plus applicable GST.
In this case, tax shall not be deductible as taxable value of goods is less than the threshold limit of 2,50,000/-. Books are exempted vide Notification No. 12/2017 – Central Tax (Rate)dated 28.06.2017.
TDS ON ADVANCE
Tax shall be deducted when advance is paid to a supplier on or after 01.10.2018 for supply of taxable goods or services or both.
No tax shall be deducted, where any amount was paid in advance prior to 01.10.2018 and the tax invoice has been issued on or after 01.10.2018, to the extent of advance payment made before 01.10.2018.
LATE FEE, INTEREST AND PENALTY
- From 01.01.2021, no late fees will be levied on failure to issue certificate in time.
- Where deductor fails to deposit TDS vide Form GSRT - 7 within 10 days of the month succeeding the month in which tax was deducted, he shall be liable to pay interest @ 18% for the delay period, as per provisions of section 50 and late fees of Rs. 50 per day (Rs.25 – CGST, Rs.25 – SGST/UTGST) subject to maximum of Rs. 2000 (1,000 – CGST, 1,000 – SGST/UTGST). Such reduced late fee is applicable from June’2021 onwards vide Notification No. 22/2021-Central Tax dated 01.06.2021.
- Amount of default shall be determined as per the manner specified in section 73 or 74 of the CGST Act.
- Where any deductor fails to deduct TDS, deducts less TDS or deducted but fails to pay to the Government then he shall be liable to pay penalty under clause (v) of sub-section (1) of section 122, which shall be higher of the following:
- Rs. 20,000 (10,000 – CGST and 10,000 – SGST/UTGST or 20,000 – IGST), OR
- Amount of tax not deducted, short deducted or deducted but not paid to the Government.
ANALYSIS OF TDS BY WAY OF SOME QUESTIONS AND ANSWER
Q: When shall Tax be deducted at source?
Ans: When the total value of TAXABLE goods or services or both, under a contract, exceeds Rs.2,50,000/- (excluding central tax, State tax, UT tax and IGSTand cess indicated in the invoice)
Q: When shall tax not be deducted at source?
Ans: No deduction of tax is required when the LOCATION OF SUPPLIER AND PLACE OF SUPPLY is in a State / UTwhich is different from the State / UT of the registration of the recipient.
Q: What is the rate of Tax?
Ans: Intra-State supply - 1% under CGST and 1 under SGST/UTGST and for Inter-State supply - 2% under IGST
Q: On which value Tax shall be deducted?
Ans: TOTAL VALUE OF THE TAXABLE SUPPLY excluding central tax, State tax, Union territory tax and integrated tax and cess indicated in the invoice. Meaning thereby that tax shall not be deducted on CGST, SGST / UTGST or IGST and Cess.
Q: Whether tax is deductible on Exempted supply of Goods or Services or both?
Ans: No, tax shall not be deductible on Exempted and Nil rated supply of goods and services.
Q: Whether registration is mandatory for the tax deductor?
Ans: Yes, registration is mandatory under section 24(vi).TDS deductor has to compulsorily register without any threshold limit who is obligated to deduct TDS as per section 51. The deductor has a privilege of obtaining registration under GST without having required to obtain PAN. He can obtain registration using his Tax Deduction and Collection Account Number (TAN) issued under the Income Tax Act,1961.
Q: Whether separate registration is required as tax deductor to a person who is already registered as a supplier?
Ans: Yes, deductor is required to get a separate registration as TDS deductor by using his PAN/TAN.
Q: When Tax should be deposited?
Ans: Tax shall be deposited within 10 days after the end of the month in which deduction was made.
Q: How tax should be deposited?
Ans: Deductor shall file Form GSTR – 7 for depositing the Tax.
Q: What are the provisions relating to issue of TDS Certificate under the GST law?
Ans: A certificate of tax deduction at source shall bemade available electronically to the deductee onthe GST common Portal in Form GSTR-7A on the basis of return (Form GSTR-7) filed by the deductor.
Q: How deductee (Supplier) will get the benefit of TDS?
Ans: Deductee will login to GST portal and accept the TDS reflecting there. After acceptance, TDS will automatically reflect in his Electronic Cash Ledger.
Q: How Refund can be taken?
Ans: Refund arising on account of excess or erroneous deduction is subject to the provisions of section 54.
Such refund may be claimed either by the deductor or the deductee, but not both.Further, deductor cannot claim refund once the amount deducted has been credited to the electronic cash ledger of the deductee.Time limit for applying refund of 2 years from the relevant date is not applicable in case of refund ofany balance in the electronic cash ledger (Proviso to sub-section (1) of section 54).CBIC also provided a clarification vide S.No. 3 of Circular No. 166/22/2021-GST dated 17th November 2021. The amount deducted/collected as TDS/TCS by TDS/ TCS deductor under the provisions of section 51 /52 of the CGST Act, as the case maybe, and credited to the electronic cash ledger of the registered person, is equivalent to cash deposited in electronic cash ledger. It is not mandatory for the registered person to utilise the TDS/TCS amount credited to his electronic cash ledger only for the purpose for discharging tax liability. The registered person is at full liberty to discharge his tax liability in respect of the supplies made by him during a tax period, either through debit in electronic credit ledger or through debit in electronic cash ledger, as per his choice and availability of balance in the said ledgers.Any amount, which remains unutilized in electronic cash ledger, after discharge of tax dues and other dues payable under CGST Act and rules made thereunder, can be refunded to the registered person as excess balance in electronic cash ledgerin accordance with the proviso to sub-section (1) of Section 54, read with sub-section (6) of section 49of CGST Act.
Q: Any Late Fee or Interestapplicability?
Ans: Where deductor fails to deposit TDS in time, he shall be liable to pay Interest @ 18% for the delay period, as per provisions of section 50(1) of CGSTAct, 2017.
Q: Whether any penalty be applicable for non-deduction, short deduction or non-deposition of tax?
Ans: Yes, the penalty will be applicable under clause (v) of sub-section (1) of section 122.
Q: Whether a Public Sector Undertaking (PSU) shall deduct TDS on payment or credit made for a supply to another PSU?
Ans: No, proviso inserted vide Notification No.61/2018-Central Tax dated 05.11.2018.
Q: Whether TDS provision is applicable to the Ministry of Defence?
Ans: No, proviso inserted vide Notification No.57/2018-Central Tax dated 23.10.2018.
Q: Whether TDS provisions are applicable to the supply of goods or services or both which take place between one person to another person specified under clauses (a), (b),(c) and (d) of sub-section (1) of Section 51?
Ans: No, Proviso inserted vide Notification No.73/2018-Central Tax dated 31.12.2018, applicable w.e.f.31.12.2018.
CIRCUMSTANCES WHEN SHOULD TAX BE DEDUCTED?
- When the total taxable value of supply exceeds Rs.2,50,000/- under a contract.
- Supplier, place of supply and recipient are in the same state. It would be intra-state supply and TDS (Central and State tax) shall be deducted. It would be possible for the supplier (i.e., the deductee) to take credit of TDS in his electronic cash ledger.
Example: where the location of the supplier and the place of supply is in Delhi and the recipient is also registered in Delhi. It is an intra-State supply. Tax will be deducted @1% each under CGST and SGST.
- Supplier as well as place of supply are in different states. In such cases, integrated tax would be levied. TDS to be deducted would be TDS (Integrated tax) and it would be possible for the supplier (i.e., the deductee) to take credit of TDS in his electronic cash ledger.
Example: where the location of the supplier is in Chandigarh and the place of supply is in Delhi and recipient is registered in Delhi. It is an inter-state supply, therefore, integrated tax would be levied. Tax will be deducted @ 2% under IGST.
CIRCUMSTANCES WHEN SHOULD NOT TAX BE DEDUCTED?
- When total taxable value of supply is not exceeding Rs. 2,50,000/- under a contract.
- When there are more than one contract and each contract is for supply of taxable goods / services and value not exceeding Rs. 2,50,000/-
Example: M/s Ram Brothers entered into 2 contracts for supply of goods to a Department of Govt. valued at Rs. 2,20,000/- and Rs. 2,10,000/- Here, tax is not required to be deducted as each taxable supply under a contract is not exceeding Rs. 2,50,000/-.Nevertheless, their joint value is more than Rs. 2,50,000/-.
- When there is a common contract for taxable supply as well as exempted supply butthe value of taxable supplies is not exceeding Rs. 2,50,000/- under that contract.
- Goods or Services Exempted under GST Act: -
(a) Services exempted under notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017 as amended from time to time.
(b) Goods exempted under notification No. 2/2017 – Central Tax (Rate) dated 28.06.2017 as amended from time to time.
(c) Goods on which GST is not leviable. For example, petrol, diesel, petroleum crude, natural gas, aviation turbine fuel (ATF) and alcoholic liquor for human consumption.
- Where the location of the supplier (deductee) and place of supply is in a State /Union Territory which is different from the State / Union Territory where the recipient(deductor) is registered.
In other words, Supplier as well as place of supply are in State A and recipient is located in State B. The supply would be intra-State supply; therefore, central tax and state tax would be levied. In such case, transfer of TDS (Central tax + State taxState B) to the cash ledger of the supplier (Central tax + State tax of State A) would be difficult. Therefore, in such cases, TDS would not be deducted.
E.g. Where the location of the supplier is in Chandigarh and the place of supply is in Chandigarh and recipient is registered in Delhi. No tax shall be deducted.
- All activities or transactions specified in Schedule III of the CGST Act, irrespective of the value.
- Where the payment relates to a tax invoice that has been issued before 01.10.2018.
- 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.
- Where tax is to be paid on reverse charge by the recipient i.e., the deductor.
- Where the payment is made to an unregistered supplier.
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