Dear Friends, below is my analysis on why GST should be excluded from Rs 50 lakhs threshold u/s 194IA. This principle can be applied for entire chapter XVII-B (TDS section), where threshold is to be arrived at.
The wordings used in sec 194IA is “…any sum paid to transferor by way of consideration for transfer of any immovable property…” Section does not defines ‘consideration’, this is where the confusion arise. Read below to get the analysis on this, according to which, GST should be excluded for the purpose of arriving at the threshold limit of Rs 50 lakhs:
Page Contents
- 1. Interpretation of the words ‘any sum’ used in the section 194IA
- 2. GST is not sum paid to ‘transferor’
- 3. GST not ‘income’ of the recipient transferor
- 4. GST is not a sum paid by way of ‘consideration’
- 5. GST is not sum paid for ‘transfer of immovable property’
- 6. Cannot and should not differentiate ‘amount which is subject to tax’ and ‘amount used for threshold’
1. Interpretation of the words ‘any sum’ used in the section 194IA
The word used in this section ‘any sum ’ relate to sum paid for purchase of immovable property’. As per the agreement of sale, GST component is to be paid separately as per the prevailing rates and is not included in the consideration payable to transferor for purchase of immovable property. High court in the case of CIT (TDS) Jaipur vs Rajasthan Urban infrastructure, has also given a similar judgement in case involving TDS under chapter XVII-B of Income Tax act. Further, CBDT’s circular 1/2014 dated 13.1.14 has extended the scope of circular 4/2008 dated 28.4.08 beyond section 194I, to include entire chapter XVII-B, which clarifies that the intent of the law is to charge TDS only on ‘income’ of the recipient, and not ‘any sum’ paid.
2. GST is not sum paid to ‘transferor’
GST is a sum paid to transferor, for onward payment to Government. Transferor only acts as a collecting agency for government for collection of tax.
3. GST not ‘income’ of the recipient transferor
GST collected by recipient transferor is paid to Government. The ultimate beneficiary of the tax so collected is Government (and not recipient transferor). Therefore, GST is ‘diversion at source’ of GST so collected. Hence, recipient transferor cannot accrue GST collected as income.
4. GST is not a sum paid by way of ‘consideration’
GST is not a sum paid by way of consideration, pursuant to agreement of sale. It is a ‘tax’ levied and paid by way of statutory compliance, pursuant to prevailing laws. This levy may vary from time to time. If the rates go down, the charge will go down. If the goods or services are exempted from tax, there will be no charge of GST. While section 194IA of Income tax act does not defines consideration, section 2(d) of Indian Contracts Act 1872 defines consideration, relevant extracts of which reads as follows “Where, ‘at the desire of promisor’, promisee does something, such an act is called consideration for the promise”. This definition says that the action has to be at the desire of promisor, who is one of the party involved. Payment of GST is neither at the desire of transferor nor transferee. It is as per the requirement of the prevailing laws. So payment of GST is not at the desire of either parties involved, but to comply with the prevailing law.
5. GST is not sum paid for ‘transfer of immovable property’
GST is a sum paid for complying with the prevailing laws.
6. Cannot and should not differentiate ‘amount which is subject to tax’ and ‘amount used for threshold’
Going by the spirit of the circular and intent of law, circular No 23/2017 dated 19.7.17 clarifies that wherever in terms of the agreement, GST component is indicated separately, TDS should be deducted on amount without including such GST. If the principle used in the circular is to exclude GST from tax, we cannot include GST while arriving at Rs 50 lakhs threshold limit for scope of section 194IA.
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