TDS Provision under GST updated as on 31st Oct 2023.
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 which needs to be fulfilled by that person, as
prescribed in the Act from time 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 Electronic Cash 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 Central Goods and Services Tax Act,
2017, Section 21 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 per cent 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 place of 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 manner specified in section 73 or
section74.
(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 FORM GSTR-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 to file 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 Unique Identity 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/SGST Act, 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 CGST Rules.
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 if the 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
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: -
(a) From 01.01.2021, no late fees will be levied on failure to issue certificate in time.
(b) 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.
(c) Amount of default shall be determined as per
the manner specified in section 73 or 74 of the CGST Act.
(d) 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 IGST and 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 / UT which 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 be made available electronically to the deductee on the 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 of any 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 may be, and credited to 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 utilize 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 ledger in accordance with the proviso to sub-section (1) of section 54, read with sub-section (6) of section 49 of CGST Act.
Q: - Any Late Fee or Interest applicability?
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 CGST Act, 2017.
Q: - Whether any penalty will be applicable
for non-deduction, short deduction or nondeposition of tax?
Ans: - Yes, 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
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 takes place between one person to
another person specified under clause (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?
· 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 but the 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 tax State 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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