Concept of TDS under GST- Section 51

TDS [TAX DEDUCTION AT SOURCE]

{Sec.51 of CGST Act, 2017.}

TDS stands for Tax Deduction at Source is a system, which was initially introduced by Indian Income Tax Department.

For what: – Prevent Tax Evasion and expands the tax net, as it provides for the creation of an Audit Trail.

Section 51 of the CGST Act provides for deduction of tax at source under certain circumstances. This section also lists out the deductor’s who are mandated by the central Govt to deduct tax at source, the rate of tax deduction and the procedure for remittance of tax deducted.

Section 51 provides as follows:-

1. Applicability of TDS under GST

Government has mandated following persons to deduct TDS:-

a. A Department or Establishment of the Central or State Government (51(1)(a)).

b. Local Authority (51(1)(b)).

c. Governmental Agencies (51(1)(c )).

d. Notified Persons/Category of persons (51(1)(d)).

Following persons are notified under 51(1)(d) of the CGST Act by the Central Govt:-

a. An Authority or a Board or any other body:-

i. Set up by an act of parliament or state legislature or

ii. Establishment by any Govt.

With 51% or more participation by way of Equity or control to carry out any function.

b. Society established by the Central/State Government or any other Local Authority under the Societies Registration Act, 1860.

c. Public sector Undertakings.

2. When TDS to be deducted under GST

TDS is required to be deducted where Deductees are the Suppliers whose total value of supply of Taxable goods and/or Services under a Contract exceeds Rs.250000/- exclusive of tax & cess as per the invoice.

3. At what rate TDS to be deducted under GST

Tax would be deducted @1% of the payment made to the supplier (Deductee) of Taxable value of Goods and/or Services where the total value of such supply under a contract exceeds Rs.250000/- .

Individual Supplies may be less than Rs.250000/- but if total value under a contract exceeds Rs.250000/-, TDS is required to be deducted.

Note: – It may be noted that Sec.20 of IGST Act, 2017 provides that in case of TDS, the deductor shall deduct tax @2% from the payment made or credited to the supplier.

Tax Deducted at Source= 1% of net value of taxable supplies (i.e. Excluding the amount of Central/State Tax, UTGST, IGST and Cess indicated in the Invoice).

4. Categories of Persons Not liable to deduct TDS under GST

Tax is not liable to be deducted at source in the following cases-

• When Goods/Services are supplied from a Public sector undertaking to another Public sector undertaking, whether or not a distinct person.

{Notification No.61/2018 CT dated 05-11-2018.}

• When supply of goods and/or services takes place between one person to another person specified in clauses a,b,c & d of Sec.51 (1) of CGST Act.

{Notification No.73/2018 CT dated 31-12-2018.}

5. Tax Deduction under GST is not required to be made under following circumstances:-

• Total Value of Taxable supply <= Rs.250000/- under a contract.
• Where the contract involves supply of both Taxable and Exempted goods, but the value of taxable supply in the contract <= Rs.250000/- in a contract.

{For example in a case where the contract involves supply of both Taxable and Exempted goods and the value of taxable supply exceeds Rs.250000/-, concept of TDS Applies here but there should be no deduction of tax and cess should be made on the Value of exempted goods or services or both even if the exempt and taxable supply are billed together}

• All activities or transactions specified in Schedule III of the CGST/SGST Acts 2017, irrespective of the value.
• Receipt of services which are exempted. For example, services exempted under notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017 as amended from time to time.
• Receipt of goods which are exempted. For example, goods exempted under notification No. 2/2017 – Central Tax (Rate) dated 28.06.2017 as amended from time to time.
• Goods on which GST is not leviable. For example, petrol, diesel, petroleum crude, natural gas, aviation turbine fuel (ATF) and alcohol for human consumption.
• 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 the payment is made to an unregistered supplier.
• Where the payment relates to “Cess” component.
• Where the location of the supplier and place of supply is in a State(s)/UT(s) which is different from the State / UT where the deductor is registered. This is explained in detailed in the below table:-

6. Registration of deductor of tax in GST

• Section 24(vi) of the CGST Act, 2017 provides for compulsory liability for registration for the deductor’s of TDS.
• A deductor in GST will be required to get registered and obtain a GSTIN [Goods & Services Tax Identification Number] as a TDS deductor even if he is separately registered as a supplier.
• A deductor has to get himself registered through the portal www.gst.gov.in by using their PAN/TAN.

7. Deposit of TDS under GST with the Government

The amount of tax deducted at source should be deposited to the Government account by the deductor by 10th of the succeeding month.

8. TDS Return under GST:-

Every registered TDS deductor is required to file a Return in FORM GSTR 7 electronically within 10th of the month succeeding the month in which deductions have been made to avoid payment of any late fee, interest. [Section 39(3) of the CGST Act, 2017 read with Rule 66 of the CGST Rules, 2017.

9. TDS Certificate under GST:-

The deductor shall furnish to the deductee a system generated certificate in FORM GSTR 7A mentioning therein the Contract value, Rate of deduction, Amount deducted, Amount paid to the Government and Other related particulars.

The said certificate is to be furnished within 5 days of crediting the amount so deducted to the Government i.e. within 5 days of furnishing return in FORM GSTR7. The deductee (i.e. the supplier) shall claim the credit of such deduction in his Electronic Cash Ledger.

Ex – The Municipal Corporation of Chennai deducts CGST at source @1% from the payment to be made to a notified supplier on 4th July. This TDS amount has to be remitted into the Treasury on or before 10th August. The TDS certificate with the above-mentioned details has to be issued on before 15th of August.

10. Late fee, interest and penalty under GST in respect of TDS

The provision of late Fees in respect of TDS in the GST is a layered provision-

• If the deductor has not remitted the amount deducted as TDS to the Govt within the prescribed time limit, he is liable to pay penal interest u/s.50 in addition to the amount of tax deducted.
• If the deductor fails to furnish the return in FORM GSTR-7 (under Section 39(3)) by the due date (i.e. within 10 days of the month succeeding the month in which deduction was made) he shall pay a late fee of Rs. 100/- per day under CGST Act &SGST/UTGST Act separately during which such failure continues subject to a maximum amount of Rs. 5000/- each under CGST Act & SGST/UTGST Act.
• If any deductor fails to furnish the certificate of TDS deduction to the deductee [i.e. the supplier] within 5 days of crediting the amount so deducted to the Government (i.e. furnishing return in FORM GSTR7), the deductor shall pay a late fee of Rs. 100/- per day under CGST Act & SGST/UTGST Act separately from the day after the expiry of 5-day period until the failure is rectified, subject to a maximum amount of Rs.5000/- each under CGST Act & SGST/UTGST Act.

11. Refund on excess/erroneous TDS deduction under GST

The deductor or the deductee can claim refund of excess deduction or erroneous deduction. The provisions of section 54 relating to refunds would apply in such cases. However, if the deducted amount is already credited to the electronic cash ledger of the supplier, the same shall not be refunded.

Illustration of various situations requiring determination of value of supply for deduction of tax:-

Situation 1:- Supplier is registered and contract value is excluding GST

Supplier X makes taxable supply worth Rs. 10,000/- to a Municipality where contract for supply is for Rs.1500000/-. The rate of GST is 18%. Supplier and the deductor are in the same State. Following payment is being made by this Municipality to X:

Rs. 10,000 (value of Supply) + Rs 900 (Central Tax) + Rs 900 (State Tax).

Value of supply = Rs.10,000/-

Tax to be deducted from payment:-

Central Tax = 1% on Rs.10,000/- = Rs.100/-

State Tax = 1% on Rs.10,000/- = Rs.100/-

Payment due to X after TDS as per GST provisions: Rs. 11600/-*

*(Rs.10,000/- + Rs.900 + Rs.900 – Rs.100 – Rs.100 = Rs.11600/-)

Situation 2:- Supplier is registered and contract value is inclusive of GST

Supplier Y of Mumbai makes taxable supply worth Rs. 10,000/- & exempted supply worth Rs. 20,000/- in an invoice/bill of supply to Finance Dept. of GoI located in New Delhi where contract for supply is for Rs.6,00,000/- (Rs.2,60,000 for taxable supply including GST and Rs.3,40,000 for exempted supply). The rate of GST is 18%. Following payment is being made by GoI to Y: Rs.10,000/-(value of taxable Supply) + Rs.1,800 (Integrated Tax) + Rs.20, 000/- (value of exempted Supply).

Whether any deduction of tax is required?

Value of taxable supply in the contract= Rs.2,60, 000/- (including GST) Value of such contract excluding tax= 260000 x 100/118= Rs.220340/-

Since, the value of taxable supply in the contract does not exceed Rs.2.5 Lakh, deduction of tax is not required.

Situation 3:- Supplier is registered under composition scheme

Supplier ZA is a person registered under the composition scheme in Jharkhand who makes taxable supply worth Rs. 10,000/-to a Local Authority of Jharkhand where value of taxable supply under the contract is for Rs.2, 55,000/-

Following payment is being made by the Local Authority of Jharkhand to ZA: Rs.10, 000/- Value of taxable supply under the contract is Rs.2, 55, 000/- which is more than Rs.2.5 Lakh and hence deduction of tax is required.