Like the Income Tax Act, provisions for the Tax Deduction at Source (hereinafter referred to as TDS) have also been incorporated in GST Acts. Section 51 of the CGST Act, 2017 empowers the government to provide for deduction of certain amount as TDS in the hands of prescribed persons i.e Central Government, State Governments or Local authorities etc. against the payments to be made to the registered person.
The rationale I strive to discern behind enacting such withholding provisions seems to be that since the governments are not suppliers per se and as such are under no liability to file return, the suppliers making supply to the government may charge GST from them and may not discharge their liabilities and make compliances of the GST laws may go untraced and may indeed pocket the tax collected from the government. Hence to curb this practice and to create traces of tax flows need was felt to put in place effective check. Therefore, nudged by such need the government introduced the TDS provisions in the GST laws to keep check and balances in the system.
The TDS provisions or section 51 became effective with effect from 01st October, 2018 vide notification number 50/2018 Central Tax dated 13/09/2018.
For example if the supply is made and invoice issued before 01-10-2018 and only payment made thereafter, no GST TDS shall be liable to be deducted.
If contract is made before 01-10-2018 but invoice is issued and payment is made after that date, GST TDS shall be deducted.
If the advance payment is made prior to 01-10-2018 and invoice is issued and balance payment is made after that date, GST TDS shall be deducted on the balance payment only.
Who is Liable to deduct TDS:-
As per Sub section (1) of section 51 following persons are liable to deduct the TDS while making payment (hereinafter referred to as the prescribed persons):
(a) a department or establishment of the Central Government or State Government e,g Telecommunication Department; or
(b) local authority e.g Municipalities; or
(c) Governmental agencies e.g National Skill Development Agency; or
(d) such persons or category of persons as may be notified by the Government on the recommendations of the Council.
Now in terms of clause (d) supra, the Central Government vide notification number 50/2018 Central Tax dated 13/09/2018 supra notified following persons to be liable to deduct TDS from payments to be made by them:
(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.
In terms of section 51 the persons prescribed above are liable to deduct the TDS
a. In case of local supplies- @ 2% (1% CGST+1% SGST)
b. In case of inter-state supplies- @ 2% IGST
Nature of TDS:-
TDS under GST is, to my understanding, a withholding of GST to be deposited with the government beforehand. The credit of such deduction is available to the deductee in his electronic Cash Ledger itself. Some people may define it as Input credit but it is indeed Tax credit available in electronic cash ledger itself. Hence, Input Tax Credit shall be a misnomer for the TDS which is just a credit of GST withheld in advance.
As per provisions of section 39(3) of CGST Act, 2017 the return of deduction of TDS is to be filed by 10 of month immediately following the month in which the TDS is deducted by the prescribed person. As such, it is clarified that unlike normal returns to be filed in form GSTR-3B it is not necessary for the deductor for file GSTR-7 every month if there is no deduction made by such person in any particular month.
The details filed in GSTR-7 gets reflected in the login of the deductee on the GST portal which he accepts and avails the credit therefor.
Interest and Late Fee:-
As per the provision of sub section (6) of section 51, if there is a delay in depositing the tax , the prescribed person shall be liable to an interest @ 18% p.a in terms of section 50(1) along with the amount of TDS to be deposited.
However, provisions of section 73 and 74, i.e proceedings for erroneous or fraudulent deposit or omission thereof, of the CGST Act, 2017 also get attracted if any such default is made
Late fee is imposed in terms of provision of section 47 of the CGST Act, 2017 which imposes a penalty of Rs. 100 per day of the failure. As such a penalty of Rs. 200 per day (Rs. 100 CGST+Rs. 100 SGST) shall be levied for the period of delay. But that limit is capped at maximum of Rs. 5000.
While filing the GSTR-7 , interest and late fee are calculated automatically.
Issue of TDS certificate-
In terms of provision of sub section (3) of section 51 the deductor is under duty to issue TDS certificate to the deductee in the manner prescribed. However, this provision has been kept in abeyance till the notification of the effective date.
Correction in GSTR-7
No revision is possible once the return GSTR-7 has been filed. But the correction can be made in the next return in respect of the return previously filed. So the deductee also needs to be cautious to keep a watch on any discrepancy that may occur in the return filed by the prescribed persons.
Refund of any erroneous or excess deduction may be claimed either by the deductor or the deductee. But no refund shall be allowed to deductor if the amount is credited in the electronic cash ledger of the deductee.
What is not liable for GST TDS-
1. If the value of individual contract does not exceed Rs. 2.50 lakhs.
For example, if A a Chartered accountant is having two different contracts with a Government company one for internal audit for Rs. 2 lakhs and one for TDS and GST returns compliances for Rs. 75,000. In such a case the company shall not deduct any GST TDS as any contract does not exceed Rs. 2,50,000 notwithstanding that both the contracts belong to the same person.
2. The person other than the prescribed ones are not liable to deduct GST TDS.
3. If the supplier and the place of supply is different from the place of registration of the recipient i.e the prescribed person.
For example, if the supplier is situated in Gurgaon, Haryana and provides services in Faridabad, Haryana whereas the recipient, a government agency, taking services is situated in Delhi, then the agency shall not deduct GST TDS on the bill of the supplier.
4. Supplies as mentioned under schedule-III.
5. Intra state supplies received from unregistered dealer provided he is not otherwise liable u/s 24 for registration. (Notification 9/2018 (central tax) dated 28/06/2017). Reason for the same may be that since an unregistered person is not required to be registered, he cannot claim the credit for TDS online so this requirement has been dispensed with for such person.
6. Any payment relating to supplies made and invoice issued prior to 01-10-2018.
Value for imposing GST TDS-
Basic invoice value excluding CGST, SGST, UGST, IGST and Cess shall be the value on which GST TDS shall be deducted i.e the bare value of supplies as per section 15 will be the base amount for calculation of GST TDS.
Disclaimer: Above discourse is the product of my study, research, self analysis and understanding of the bare provisions and perusal of other related resources and is being presented for the simplified understanding of the readers and in no way constitute advise of consultancy. As such, the readers are advised to apply their own discretion and go through the law as prevailing at the time of reading the article and take professional advice, if needed, before taking action based on this discourse.