TDS: Tax Deduction at Source (TDS).
Tax Deduction at Source (TDS) is a system, initially introduced by the Income Tax Department. It is one of the methods to collect tax, under which, certain percentage of amount is deducted by a recipient at the time of making payment to the supplier. TDS provisions came into force from October 01, 2018 vide Notification No. 50/ 2018 – Central Tax dated 13.09.2018. This notification also specifies persons or category of persons liable to deduct tax
TDS is to be deducted at the rate of 2 %( 1%CGST+1%SGST) on payments made to the supplier of taxable goods and/or services, where the total value of such supply, under an individual contract, exceeds two lakh fifty thousand rupees (250000). (excluding the amount of Central tax, State tax, Union Territory tax, Integrated tax and cess indicated in the invoice). Thus, individual supplies may be less than 2,50,000/-, but if total value of supply under a contract is more than 2,50,000/-, TDS will have to be deducted.
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.
e.g. Where the location of the supplier is in Rajasthan and the place of supply is also in Rajasthan and recipient is registered in Delhi. No tax shall be deducted.
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.
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.
Section 51 of the CGST Act, 2017
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 local authority; or
(b) Governmental agencies; or
(c) Such persons or category of persons as may be notified by the Government on the recommendations of the Council.
(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
3. The deductor shall furnish to the deductee a certificate mentioning therein the contract value, rate of deduction, amount deducted, amount paid to the Government and such other particulars in such manner as may be
4. If any deductor fails to furnish to the deductee the certificate, after deducting the tax at source, within five days of crediting the amount so deducted to the Government, the deductor shall pay, by way of a late fee, a sum of one hundred rupees per day(Rs 100) from the day after the expiry of such five-day period until the failure is rectified, subject to a maximum amount of five thousand
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
6. If any deductor fails to pay to the Government the amount deducted as tax under sub-section (1), he shall pay interest in accordance with the provisions of sub-section (1) of section 50, in addition to the amount of tax
7. The determination of the amount in default under this section shall be made in the manner specified in section 73 or
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.
Q 1. Is there any threshold limit for deduction of tax at source?
Ans: Yes, tax shall be deducted at source if value of the supply of taxable goods or services or both, under a contract, exceeds 2,50,000. Value shall exclude central tax, state tax, UT tax and IGST and cess indicated in the invoice.
Q 2. Municipal Corporation of Delhi has ordered supply of taxable goods to a supplier registered in Chandigarh for supply in Chandigarh itself. Is this transaction liable for deduction of tax at source?
Ans: No tax shall be deducted 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.
Here, the location of the supplier is in Chandigarh and the place of supply is in Chandigarh and the recipient is registered in Delhi. No tax shall be deducted.
Q 3. What is the rate of tax deduction at source?
Ans: 2% on inter-state supply and 1% of CGST & SGST/UT each on intra- state supply shall be deducted at source from the payment made or credited to the supplier for supply of taxable goods or services or both.
Q 4. What is the time limit for deposit of tax deducted?
Ans: The amount deducted shall be deposited within 10 days from the end of the month in which such deduction is made.
Q 5. What is the procedure of depositing the tax deducted at source?
Ans: Deductor will furnish Form GSTR – 7 and deposit tax online within 10 days from the end of the month in which deduction was made.
Q 6. Is GST Registration mandatory for the deductor?
Ans: Yes, it is mandatory for the deductor to take GST registration.
Q 7. What is the nature of certificate to be furnished by the deductor to the deductee and what is the time limit?
Ans: The Deductor shall furnish a certificate in Form GSTR-7A mentioning therein the contract value, rate of deduction, amount deducted, TDS deposited with the Government and such particulars as may be prescribed in this behalf, to the deductee. This certificate is to be issued within 5 days of depositing the TDS with the Government, failing which, the deductor would be liable to pay late fee of ` 100 per day during which the failure continues but subject to Maximum of 5000.
Q 8. Can the deductee claim credit of the Tax deducted at source by the Deductor?
Ans: Yes, the deductee can claim credit of the tax deducted. Deductor will furnish the return and deductee will accept the credit reflecting in his GST portal. Amount will be credited to his electronic cash ledger.
Q 9. Can tax, once deducted, be claimed as a refund? Who can claim refund?
Ans: Yes, it is possible to claim refund arising out of excess or erroneous deduction, as per the provisions of Section 54 of the CGST Act. 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.
Q 10. What is the effective date of applicability of TDS provisions?
Ans: October 01, 2018 is the effective date for applicability of TDS provisions.
Q 11. Department of has entered into a contract worth ` 10 lakh with a supplier ABS prior to 01.10.2018. Now, they are making a payment of `1.5 Lakh in respect of an invoice dated 25.10.2018 submitted by the supplier. Should DDO deduct tax while making payment of `1.5 Lakh?
Ans: Yes, tax shall be deducted as the payment is made after the effective date.
Q 12. Department of has entered into a contract worth ` 5 lakh with a supplier ABS prior to 01.10.2018. However, goods are supplied after 01.10.2018 and payment is also made later on. Should DDO deduct tax while making payment of `5 Lakh?
Ans: Yes, tax shall be deducted as both the supply and payment are made after the effective date.
Q 13. Department of has entered into a contract worth ` 5 lakh with a supplier M/s ABS on 01.08.2018 and an advance of 3,00,000 was made on the same date. However, goods were supplied on 02.11.2018 and the balance payment was released on 05.11.2018. On which amount shall DDO deduct tax?
Ans: No tax shall be deductible as advance was made before the effective date and remaining amount is below the threshold limit.
Q 14. A PSU has purchased goods worth ` 4 lakh on 15.07.2018. However, payment was made on 01.11.2018. Should the DDO deduct tax?
Ans: No tax shall be deductible as purchase was made before 01.10.2018, the effective date.
Q 15. M/s Ram Brothers entered into 2 contracts with a Department of Govt. for supply of goods valued at ` 2,20,000 and ` 2,10,000. DDO has issued a cheque of ` 4.30 lacs to him. Should the DDO deduct tax?
Ans: No tax will be deductible as each taxable supply under a contract is not exceeding ` 2,50,000.
Q 16. Can a Composition Dealer take tax credit of Tax deducted at source?
Ans: Yes, Composition dealer can also take credit and adjust this amount against his output tax liability, as this amount is not an input tax credit.
Q 17. Will tax be deductible on supplies received from outside India?
Ans: No, as this sort of transaction is covered under reverse charge.
Q 18. Whether tax will be deductible on payment made or credited to an unregistered person?
Q 19. What needs to be done if I have taken registration for TDS on 1st November, 2018 but was required to deduct TDS from 1st October, 2018?
Ans: All deductions made earlier must be included while furnishing the first return. In other words, while furnishing the return for the month of November, 2018, TDS deducted for the months of October and November, 2018 shall be included in the said return.
Q 20. As a deductor, do I have to fill any form to generate FORM GSTR 7A?
Ans: No, a deductor is not required to fill up any separate form for generation of FORM GSTR-7A.FORM GSTR 7A shall be generated if return in FORM GSTR 7.