TDS in GST Understanding Concept and Addressing Litigation Concerns

The Goods and Services Tax (GST) regime has been in effect for several years now, and while it has simplified the indirect tax landscape, it has also given rise to various litigations. One area that has been gaining attention in recent days is Tax Deducted at Source (TDS) in GST. In this article, we will delve into the concept of TDS in GST, its applicability, and the concerns surrounding litigation.

Understanding TDS in GST

TDS is a mechanism where a portion of the payment made to a supplier is deducted and deposited with the government. This is similar to the TDS mechanism under income tax. In the GST regime, TDS is applicable on payments made to suppliers of taxable goods and services.

As per Section 51 of the Central Goods and Services Tax (CGST) Act, 2017, TDS is applicable when the total value of the contract exceeds ₹2.5 lakhs, excluding taxes. The deductor is required to deduct TDS at the rate of 2% (1% Central GST + 1% State GST or 2% Integrated GST) on payments made to suppliers.

GSTR-7: The Return for TDS Transactions

The deductor is required to file GSTR-7 every month, reporting TDS transactions, regardless of the payment amount. GSTR-7 is a return that contains details of TDS transactions, including the amount deducted and deposited with the government.

Here are some situations where there may be a difference between GSTR-7 and GSTR-1 or GSTR-3B:

GSTR-7 vs GSTR-1:

1. Mismatch in TDS amount: The TDS amount deducted by the deductor (GSTR-7) may not match the TDS credit claimed by the supplier (GSTR-1).
2. Difference in taxable value: The taxable value reported in GSTR-7 may not match the taxable value reported in GSTR-1, leading to discrepancies in TDS calculation.
3. Non-reporting of TDS transactions: The deductor may not report all TDS transactions in GSTR-7, while the supplier may claim TDS credit for those transactions in GSTR-1.

GSTR-7 vs GSTR-3B:

1. Mismatch in TDS liability: The TDS liability reported in GSTR-7 may not match the TDS liability reported in GSTR-3B, leading to discrepancies in TDS payment.
2. Difference in TDS payment: The TDS payment made by the deductor (GSTR-7) may not match the TDS payment reported in GSTR-3B.
3. Non-reporting of TDS payment: The deductor may not report TDS payment in GSTR-7, while the supplier may claim TDS credit in GSTR-3B.

Common reasons for discrepancies:

1. Data entry errors: Errors in data entry, such as incorrect GSTIN, incorrect taxable value, or incorrect TDS amount.
2. Non-compliance with GST provisions: Non-compliance with GST provisions, such as non-deduction of TDS, non-payment of TDS, or non-reporting of TDS transactions.
3. Lack of communication: Lack of communication between the deductor and supplier, leading to discrepancies in TDS calculation and payment.

These discrepancies can lead to litigation, penalties, and interest. It’s essential to ensure accurate reporting and payment of TDS to avoid these issues.

Concerns Surrounding Litigation

While TDS in GST is a mechanism to ensure tax compliance, it has given rise to various litigations. One of the primary concerns is the mismatch between the taxable value filed by the supplier and the recipient.

In many cases, government departments take a long time to make payments, which creates a mismatch between the taxable value filed by the supplier and the recipient. This mismatch can lead to litigation, as the supplier may have already paid tax on the invoice value, while the recipient may have deducted TDS on a lower value.

Recent Case Law: G. Parthiban vs The Deputy State Tax Officer

In a recent case, G. Parthiban vs The Deputy State Tax Officer (dated August 13, 2024), the court ruled on the applicability of TDS provisions under GST. This case highlights the importance of accurate reporting and payment of TDS to avoid litigation.Conclusion

TDS in GST is a mechanism to ensure tax compliance, but it requires careful attention to detail to avoid litigations. By understanding the concept of TDS in GST, its applicability, and the concerns surrounding litigation, businesses can ensure compliance and avoid unnecessary disputes.