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Rajesh Advani,
Deputy Commissioner Of State Tax, Mumbai
The concept of TDS was introduced in the indirect taxation system in Maharashtra and many other states for persons carrying out works contract to establish trail for taxation officials. This was due to the fact that there was huge scope for leakage of revenue in the civil construction sector which was the major player to be covered under the Works Contract Act. This concept of TDS was also present in the Maharashtra VAT Act (MVAT Act in short) and many other Acts for works contract transactions only. This concept was present in the GST Act but remained to be implemented as IT system was not fully prepared to deal with this added compliance feature. TDS would be implemented from 1st October, 2018 as per the notification no. 50/2018 (Central) issued by the Govt of India (similar notification under MGST Act).

The concept of TDS is simple concept. The recipient deducts tax at the notified rate from the payment due to the supplier and deposits the tax into the government treasury on behalf of the supplier. When the supplier files return, he can claim credit of the tax paid by the recipient on his behalf. Section 51 of the CGST Act deals with the issue of TDS.

Person Liable to Deduct TDS under GST Law

As per this section, the following persons are liable to deduct tax at source.

1) Department or establishment of Central Govt or state govt.

2) Local authority (Panchayat ,Panchayat Samiti ,Municipal Council, Muncipal Corporation, Municipal Committee, Zilla Parishad, District Board,  any other authority legally entitled to, or entrusted by the Central Govt or any State Govt with the control or management of municipal or local fund, Cantonment Fund, Regional Council or District Council, Development Board constituted under article 371 of the Constitution and Regional Council constituted under article 371A of the Constitution )

3) Governmental agencies.

4) An authority or board or any other body set up by an Act of Parliament or State legislature or established by any Govt with 51 percent or more participation by way of equity or control to carry out any function.

5)Society established by Central Govt or State Govt or local authority under Societies Registration Act, 1860

6)Public Sector Undertakings

By virtue of the provisions of section 24 (vi) of the CGST Act, the above mentioned persons are also liable to get registered under the CGST Act irrespective of their turnover. All the DDOs in the Government, who are performing the role as deductor have to register with the common portal and get the GST Identification Number (GSTIN).

The above mentioned persons (referred to as “the deductor) have to deduct tax at the rate of 2 percent( 1 percent CGST and 1 percent SGST in the case of intrastate supplies ; 2 percent IGST in the case of interstate supplies) from the payment made or the amount credited to the supplier (referred to as “the deductee”).The deduction is to be made on the supply of taxable goods or services or both, where the total value of supply ,under a contract, exceeds two lakh and fifty thousand rupees (excluding CGST, SGST, IGST, UTGST and Cess). This could be better explained with an example. Suppose persons A and B have supplied goods( 18 percent tax rate) to Konkan Development Board vide contracts of value Rs 2.6 lakhs (inclusive of tax) and Rs 3 lakhs(inclusive of tax) respectively. Since Konkan Development Board is constituted under article 371 of the Constitution, hence it is covered under the definition of local authority and hence is mandated to deduct TDS under section 51 of the CGST and MGST Acts.The values of these 2 contracts net of tax work out to Rs 2.2 lakhs and Rs 2.55 lakhs respectively.Therefore as per the provisions of section 51,Konkan Development Board has to deduct TDS from the payment made to B (as contract value net of tax is more than Rs 2.5 lakhs) and no deduction has to be made from the payment made to A.

Also,no deduction is to be made if the supplier and place of supply are in different state/Union territory from the state/Union territory in which recipient is registered.

The tax deducted shall be paid by the deductor to the government within 10 days after the end of month in which the deduction is made by filing return in form GSTR 7. Every deductor shall deduct the tax amount from the payment made to the supplier of goods or services or both and deposit the tax amount so deducted with the Government account through NEFT to RBI or a cheque to be deposited in one of the authorized banks, using challan on the common portal. For payment process of Tax Deduction at Source under GST two options can be followed, which are as under: Option I: Generation of challan for every payment made during the month Option II: Bunching of TDS deducted from the bills on weekly, monthly or any periodic manner.

The DDO should maintain a Register as per proforma given in Annexure ‘A’ to keep record of all TDS deductions made by him during the month. This Record will be helpful at the time of filing Monthly Return (FORM GSTR-7) by the DDO. The DDO may also make use of the offline utility available on the GSTN Portal for this purpose.

Record to be maintained by the DDO for filing of GSTR7 –

Sr No. GSTIN of deductee Trade Name Amount paid on which tax is deducted IGST CGST SGST/UTGST Total

The amount of tax deducted and paid by the deductor shall be made available to the deductee in part C of GSTR2A. Also, deductor shall furnish to the deductee a certificate within 5 days of crediting the amount .The certificate contains the details such as the contract value,rate of deduction, amount deducted and the amount paid to the government. If he fails to furnish the certificate, the deductor shall pay ,by way of a late fee, a sum of two hundred rupees per day( Rs 100 –CGST and Rs 100-SGST) from the day after the expiry of 5 days period till the day on which the certificate is furnished ,subject to a maximum amount of ten thousand rupees( Rs 5000 each under the CGST Act and SGST Act respectively.) Also, if the deductor fails to pay to the Government the amount deducted as TDS, he shall pay interest at the rate of 18 percent addition to the amount so deducted and penalties depending on the nature of default as covered under sections 73 and 74 of the CGST/MGST Act.

On account of excess or erroneous deduction, the refund to the deductor or the deductee shall be granted only after an application for grant of refund is made as per the provisions of section 54 of the CGST/MGST Act. The excess payment could be on account of mathematical mistake or typographical error.The erroneous payment could be due to wrong mention of GSTIN or payment under wrong head. No refund to the deductor shall be granted if the amount deducted has been credited to the electronic cash ledger of the deductee.

 On close observation, the following issues come to notice-

1) The section starts with the words”Notwithstanding anything to the contrary contained in this Act ,the Government may mandate-“.These words indicate that the deduction of TDS by the persons notified in the section is mandatory.

2) Under the earlier sales tax regime (including the VAT regime in Maharashtra and many other states) TDS was applicable only to works contract transactions. However under the GST Act,TDS is applicable to the supply of goods as well as services.The scope of this provision has been widened.

3) Under the earlier Act, TDS was not applicable qua contract but was applicable on payment above certain limit to the deductee during that year for e.g.under the MVAT Act, if the payment made to the deductee on account of all contracts taken together during that year was above Rs 5 lakhs, the deductor had to deduct TDS.

4) Under the MVAT Act, the rate of tax to be deducted was different for registered persons and for unregistered persons. There was therefore an incentive for registered persons.The rate of TDS was kept at 5 percent for unregistered persons.Therefore, the loss of revenue to the government due to the person remaining unregistered was minimal.

5) The number of notified persons liable to deduct TDS under the GST Act is much larger than those liable to deduct TDS under the MVAT Act.

6) The word “shall” has been used for the subsections dealing with payment of tax deducted by the deductor into the government treasury within the notified period, furnishing of certificate of tax deduction to the deductee by the deductor, payment of late fee by the deductor in case of non furnishing of certificate to the deductee within the notified period and the payment of interest along with the tax deducted by the deductor in case of late payment. Thus, the government has cast these onerous responsibilities on the deductors which are mandatory and timelines need to be strictly followed.

Also, under the MVAT Act, there was no provision for the levy of late fee due to non furnishing of certificate to the deductee by the deductor. Hence, the certificates were not issued by the deductors within time. This provision is a big relief for the deductees but could prove to be nightmare for many government departments .

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May 2024