After deferring the provisions related to TDS since the implementation of GST, Government has vide Notification No. 50/2018 – Central Tax dated September 13, 2018 and Notification No. 51/2018 – Central Tax dated September 13, 2018 appointed 1st October, 2018 as the date from which the TDS provisions shall be made applicable. Hence it is worthwhile to understand the same for better compliance. In the present article we shall cover frequently asked questions with respect to the TDS provisions.
Page Contents
- 1. What is TDS ?
- 2. Who is required to deduct the TDS under GST (i.e. who is the deductor) ?
- 3. On which transaction is TDS under GST required to be deducted ?
- 4. How to compute the value of INR 2,50,000/- for TDS under GST?
- 5. Are there any exceptions to TDS under GST?
- 6. What is the rate of TDS ?
- 7. Is deductor required to be compulsorily registered ?
- 8. Which form is to be filed for obtaining registration ?
- 9. When TDS is to be deducted ?
- 10. When TDS is required to be paid ?
- 11. In which form is TDS certificate required to be issued ?
- 12. Which return needs to be filed by the deductor ?
- 13. What is the due date for furnishing the return in FORM GSTR-7 ?
- 14. How can deductee claim ITC ?
- 15. What are the consequences of not complying with TDS provisions ?
- 16. How shall the Government recover the amount in default ?
- 17. How shall the amount deducted in excess be refunded ?
1. What is TDS ?
It stands for tax deducted at source. It is a concept borrowed from Income Tax. Basically the payer (viz. deductor) is required to deduct some amount as tax from the invoice of a supplier and pay the said deducted amount to the Government. On the other hand, supplier can claim credit of the tax so deducted while discharging his liabilities. It acts as a powerful instrument to prevent tax evasion and expands the tax net, as it provides for the creation of an audit trail.
2. Who is required to deduct the TDS under GST (i.e. who is the deductor) ?
As per Sec. 51(1) of the CGST Act, 2017 read with Notification No. 50/2018 – Central Tax dated September 13, 2018, following persons are required to deduct the tax:
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 namely:
(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 fifty-one per cent 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 Hence basically entities of/related to the Government are only required to deduct the tax.
3. On which transaction is TDS under GST required to be deducted ?
Section 51(1) prescribes that the TDS is to be deducted from the payment made or credited to the supplier of taxable goods or services or both, where the total value of such supply, under a contract, exceeds INR 2,50,000/-.
From the above it appears that TDS provisions are attracted only if the taxable value under a contract exceeds INR 2,50,000/-. Hence one needs to only consider the taxable value of supply and not the total value of contract. Hence even if total value of contract exceeds INR 2,50,000/-, TDS provisions shall not be attracted unless the taxable value of goods or services or both exceeds INR 2,50,000/- under the said contract. In other words, value of exempted goods or services or both are not to be considered while computing the limits.
It may also be noted that the said limit of INR 2,50,000/- needs to be seen contract wise. Hence even if the aggregate value of supplies with a particular supplier exceeds INR 2,50,000/- under various contracts, TDS provisions shall not be attracted unless the taxable value under a single contract exceeds INR 2,50,000/-. It should also be noted that in such cases, TDS provisions shall only apply on a particular contract where such limits are crossed and not all the contracts with the concerned supplier.
It is also ironical to observe that the TDS needs to be deducted from the payment made or credited to the supplier of taxable goods or services. Hence even if the said supplier is not registered, TDS needs to be deducted if such supplier supplies taxable goods or services exceeding INR 2,50,000/- under a single contract. This appears to be very harsh since such unregistered suppliers will never be able to claim the credit of such TDS and hence will tantamount to a loss to the extent of the TDS amount.
4. How to compute the value of INR 2,50,000/- for TDS under GST?
Explanation to Sec. 51(1) provides that 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. Hence the limit of INR 2,50,000/- shall be calculated excluding the tax indicated in the invoice.
From the said Explanation, a view can be taken that the TDS provisions shall apply only in cases where the supplier is registered since only in that scenario will he indicate the tax amount in the invoice.
5. Are there any exceptions to TDS under GST?
Proviso to Sec. 51(1) provides 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. Said statement can be explained in the following situations:
(a) Supplier, place of supply and recipient are in the same state. It would be intra-State supply and TDS (Central plus 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.
(b) Supplier as well as the 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.
(c) Supplier as well as the place of supply are in State A and the recipient is located in State B. The supply would be intra-State supply and Central tax and State tax would be levied. In such case, transfer of TDS (Central tax + State tax of State B) to the cash ledger of the supplier (Central tax + State tax of State A) would be difficult. So in such cases, TDS would not be deducted. Thus, when both the supplier as well as the place of supply are different from that of the recipient, no tax deduction at source would be made.
6. What is the rate of TDS ?
TDS is to be deducted at the rate of 1% each (i.e. aggregate 2% for CGST+SGST/UTGST) or 2% for IGST from the payment made or credited to the deductee.
7. Is deductor required to be compulsorily registered ?
As per Sec. 24(vi) of the CGST Act, 2017 every person, who is required to deduct tax, shall obtain registration irrespective of the fact that whether such person is separately registered under the Act. Hence there are no threshold limits for registration as deductor.
8. Which form is to be filed for obtaining registration ?
Form GST REG-07 needs to be filed for obtaining registration as deductor. Applicants who don’t have PAN can register on the basis of TAN. The proper officer may grant registration after due verification and issue a certificate of registration in FORM GST REG-06 within a period of three working days from the date of submission of the application.
9. When TDS is to be deducted ?
Sec. 51(1) provides that the specified person shall deduct the tax from the payment made or credited to the supplier. Hence there is lack of clarity on whether obligation to deduct tax shall arise on the earlier of the two dates (i.e. payment or credit) or the same is at the option of the specified person. From the design of the TDS system of permitting the credit in the cash ledger electronically, it appears that the TDS needs to be done on accrual basis.
10. When TDS is required to be paid ?
As per Sec. 51(2), TDS is required to be paid within ten days after the end of the month in which such deduction is made.
11. In which form is TDS certificate required to be issued ?
As per Sec. 51(3), the deductor shall furnish to the deductee a certificate mentioning therein: a. the contract value, b. rate of deduction, c. amount deducted, d. amount paid to the Government and e. such other particulars in such manner as may be prescribed. Such certificate must be electronically made available in Form GSTR-7A within 5 days of crediting the amount so deducted to Government.
12. Which return needs to be filed by the deductor ?
As per Rule 66(1), every registered person required to deduct tax at source under section 51 shall furnish a return in FORM GSTR-7 electronically through the common portal. Details furnished in FORM GSTR-7 shall be made available electronically to each of the suppliers in Part C of FORM GSTR-2A and FORM GSTR-4A. Accordingly certificate referred in the previous question, in Form GSTR-7A, shall be electronically made available to concerned suppliers.
13. What is the due date for furnishing the return in FORM GSTR-7 ?
The due date of filing GSTR-7 is 10th of the following month.
14. How can deductee claim ITC ?
As per Sec. 51(5), a deductee shall claim credit, in his electronic cash ledger, of the tax deducted and reflected in the return of the deductor in such manner as may be prescribed. Hence it is presumed that credit in the electronic cash ledger will flow automatically from certificate electronically made available in Form GSTR-7A.
15. What are the consequences of not complying with TDS provisions ?
| Sr. No. | Event | Consequence |
| 1 | TDS not deducted | Interest (@ 18% p.a.) to be paid along with the TDS amount; else the amount shall be determined and recovered as per the law. |
| 2 | TDS certificate not issued or delayed beyond the prescribed period of five days | Late fee of Rs. 100/- per day subject to a maximum of Rs. 5000. |
| 3 | TDS deducted but not paid to the Government or paid later than 10th of the succeeding month | Interest (@ 18% p.a.) to be paid along with the TDS amount; else the amount shall be determined and recovered as per the law. |
| 4 | Late filing of TDS returns | Late fee of Rs. 100/- for every day during which such failure continues, subject to a maximum amount of five thousand rupees. |
16. How shall the Government recover the amount in default ?
Amount in default shall be recovered in accordance with Section 73 (determination of tax in non-fraud cases) or Section 74 (determination of tax in fraud cases) of the CGST Act, 2017.
17. How shall the amount deducted in excess be refunded ?
As per Sec. 51(8), excess deducted amount shall be refunded in accordance with the provisions of Sec. 54. However no refund shall be granted if such excess amount has been credited to the electronic cash ledger of the deductee.
(views are strictly personal)
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Respected sir you have presented FAQs in a tremendeous way. But i would like to correct a minor point in point no 3 you have written even in case unregistered supplier TDS need to be deducted but sir As per Standard operating Procedure for TDS issued by law committee GST council on 28th September it is clarified on page no 10 point no L) Where the payment is made to an unregistered supplier Tax deduction is not required
Every one analysed the same theoretical scenarios which were given the SOP.
1. What is the amount on which TDS is to be done if the invoice value is Rs 3 Lacs and the amount paid is Rs2 Lacs after retaining 1 Lac towards security deposit for one year?
2. And Liability posted in the books on 30th/31st of the month and the payment done on 1st of the following month what is the point of taxation? Whether TDS is to be done at the time of posting liability i.e. on last day of the month or at the time of payment i.e first day of the following month?
Dear Sir
If the service provider is unregistered, then how TDS Deducted and return filed with information of unregistered party.
Dear Sir, one clarification required that, is it necessary to have contract between supplier and service provider ? if there is no such written contract between, supplier and service provider do we need to deduct the TDS under GST ?
What credit the deducted should claim that means the direct tax paid by deductor is available for taking of credit in the deducted point of view