K. Ravi Ramachandran
Commissioner of Income Tax(TDS), Chennai

Sh. K. Ravi Ramachandran, is an IRS officer of 1994 batch and is currently posted as Commissioner of Income Tax (TDS), Chennai. He is a Post Graduate in Masters in Public Policy (MPA) from University of Minnesota, Minneapolis, USA.

He had a long experience in Income Tax Assessment and Investigation including working in CBDT.

On Central deputation, he worked as Director (School Education), Ministry of HRD, Govt. of India where he played important role in implementation of Sarva Siksha Abhiyan (SSA) and operationalisation Mid-Day Meal Schemes in schools throughout the country.

He was selected as Liaison Officer by Ministry of External Affairs, GoI and Indian Army and he successfully led a team of 60 pilgrims to a month long Himalayan High Altitude trekking of Kailash Manasarovar Yatra to Tibet, China.

Executive Summary

Unprecedented pace of changes happening in the field of Information and Communication Technology (ICT) offers both unfamiliar challenges as well as new vistas for effective tax administration. This article demonstrates as to how the GSTN offers huge possibility, as a real time collaborative tool, for TDS wing of ITD to have an effective compliance verification system without much additional cost or manpower. It also spells out a scheme to harness the potential of GSTN data base for empowering the TDS administrators by which they can have speed and precision in detecting TDS defaults. Hence, it is imperative for the ITD to collaborate with GSTN on real time basis for generation of business intelligence and analytics for effective implementation of the TDS provisions.

1. Introduction

The best win in a war is winning the war without fighting. TDS provision is a knight in shining armour in the Income Tax Department’s war against tax evasion and its endeavour of revenue mobilisation. It plays a significant role in tax collection in India as it accounts for 40% of total collection of Direct Taxes. It is a cost effective and non-intrusive tool of tax collection. It lightens the tax burden as the tax payer pays the tax, through TDS, in instalments as and when the income is earned. At the same time, TDS ensures regular flow of revenues to the State exchequer. Thus, it is a win-win situation for both the Tax Payer and the Government.

Collaboration between TDS and GSTN (Goods and Service Tax Network) will force multiply the capability of TDS wing without any additional cost or manpower and enhance the capability of TDS Officers to effectively enforce TDS provisions.

2. Why such a proposal?

Implementation of TDS provisions in the Income Tax Act, 1961 differs from that of other provisions under the Act, like assessment, investigation, transfer pricing etc., in which the reporting by the tax payer and examination by the Income Tax Department (ITD) takes place on post-mortem basis, that is, long after occurrence of the transactions. But, under the scheme of TDS, the tax payers are required to report the transactions and comply with the TDS provisions more frequently on monthly and quarterly basis and at a closer intervals from the time of occurrence of transactions. Hence, the main challenge for effective implementation of TDS provisions is that it requires closer and almost ‘live’ (real time) basis monitoring of transaction of the tax payers and TDS compliance thereon. In this regard, the advancement in information technology and data analytics provides viable solutions to the tax administrators to face this challenge.

In this regard, the operationalization of GSTN (Goods and Service Tax Network) is an important mile stone in e-governance and more particularly in the dynamically unfolding digital world, it brings a paradigm shift in tax administration. It is estimated that the GSTN is going to process almost 300 crore invoices each month from a total of 112 Lakh users. This represents a massive digitization at all levels of the Indian economy. In the GST system, invoices are required to be matched between supplier and buyer of goods and services. Hence, the GSTN virtually is going to maintain the books of account of the tax payers on real time basis, capturing almost all income and expenses.

In such situation, GSTN offers huge possibility, as a real time collaborative tool, for TDS wing of ITD to have an effective compliance and verification system for implementation of TDS provisions under Income Tax Act which very much requires such real time data. Harnessing the potential of GSTN data base will empower the TDS

administrators by bringing in precision and speed into the administrative and monitoring processes. Therefore, it is imperative for the ITD to collaborate with GSTN on real time basis for generation of business intelligence and analytics for effective implementation of the TDS provisions. Establishing a platform for seamless exchange of data between GSTN and TDS Wing is an urgent need of the hour as GSTN is in the process of firming up its architecture after initial field trials. Moreover, a robust data mining mechanism thereon will provide cost effective and non-intrusive tool for successful enforcement of TDS collections. It will also significantly contribute towards widening the tax base, promotion of voluntary compliance and thus, checking tax evasion.

3. GST at a glance:

Introduction of GST is one of the most ambitious initiatives in the arena of tax reform in India. It is expected to change the Indian tax structure and pave way for modernization of tax administration. GST is a destination based consumption tax. The introduction of GST has subsumed around 17 different indirect taxes in India, viz., Excise duty, Service tax, Central Sales tax, Value added tax, Entertainment tax, Luxury tax, Entry tax, etc.

There are three models of GST

A) Central GST – Levied by Centre

B) State GST and – Levied by State

C) Integrated GST – Levied on Inter-State supplies.

Every person whose supplies (turn over) under GST exceeds Rs.20 lakhs in a year, is compulsorily required to get themselves registered under GST. Certain assessees are required to compulsorily register even though the supplies does not exceed Rs.20 lakhs. For e.g., supplier through e-commerce, person making inter-state supply etc.

Every registered person under the GST is required to file the following returns.

GSTR 1 Outward Supplies (Sales or Services rendered) 10th of the next month
GSTR 2 Inward Supplies (Purchases or Services received) (Based on GSTR 2A, which in turn based on GSTR 1 of the supplier of goods or services) 15th of the next month
GSTR 3 Monthly return (Consolidated Revenue & Expenses) 20th of the next month
GSTR 4 Returns by Compounding tax payers (Whose turnover less than Rs.1.5 crores) (Similar to presumptive basis) 18thday of the month next to the quarter
GSTR 9 Annual Return (Final P&L Account) 31st December Next F.Y.

3.1 Forward Charge and Reverse Charge:

Generally the Service Provider or the Supplier of goods is liable to pay GST (Forward Charge). Whereas in some cases the GST is required to be discharged by the recipient of the service. This is called Reverse Charge.

For example, in case of legal fees, the lawyer (being Service provider) is exempted from paying GST and hence, he raises the bill without GST on the Client (Service receiver). Alternatively, the Client (Service receiver) shall pay the relevant GST under Reverse Charge Mechanism (RCM). In addition to this, the Client is required to deduct TDS under Income Tax for the same.

3.2 GST Network (GSTN):

The entire IT infrastructure for implementation of GST is entrusted to GSTN, a strong IT Infrastructure and Service back bone, which enables capture, processing and exchange of information amongst the stakeholders (including tax payers, States and Central Governments, Accounting Offices, Banks and RBI). The common GST Portal developed by GSTN will function as the front-end of the overall GST IT eco-system. The IT systems of CBIC and State Tax Departments will function as back-ends that would handle tax administration functions such as registration approval, assessment, audit, adjudication etc.

3.3 Unlike the earlier tax regime, GSTN captures complete trail of transactions from the first originator but also with the final recipient across the supply chain. Hence, drawing the transaction details from the GSTN and cross verifying the same with the Income Tax would help the TDS administrators to generate business intelligence on suppression / misrepresentation of facts as well as non-compliance of tax provisions. The GST registration number is a PAN based registration and hence, it would be easy for such cross verification.

4. Scope for collaboration between GSTN and TDS:

4.1 Eco system of GSTN is designed mainly to facilitate the GST administrators who are keen on monitoring the Service Providers/ Goods Suppliers on their outward supplies (Sales/Turnover)and to implement the provisions of the GST Act. They mainly deal with the credit side of the P&L a/c.

Whereas, the TDS administrators are generally interested in keeping a watch on the Service Receivers on inward supplies, i.e., their expenditures made towards services received on which whether TDS has been deducted or not. That is, they mainly deal with the items on the debit side of the P&L a/c.

4.1 (a) This dichotomy is successfully resolved by the Returns of GST-R2/GST-R2A of a person which mainly gets auto populated from the information contained in the GST-R1 which is filed by his Service Provider/Supplier of goods. Thus, this information from the GST-R2/GST-R2A can successfully be used by the TDS administrators after cross verification with TRACES (Conso Files)/ Form 26AS to verify and generate actionable intelligence as to

(a) whether TDS has been deducted or not?

(b) If deducted, has it been deducted within the prescribed time or not?

(c) If deducted, has it been deducted at the prescribed rate or not?

Recipient Name
Invoice Num
Invoice Value
Taxable Value

4.1 (b) Present challenge:

Though the Invoice-wise data downloaded from the Return GST-R2 / GST-R2A is a goldmine for TDS verification, the limitation is that Return GST-R2 / GST-R2A does not have a marker to distinguish as to whether the particular Voucher record is either for supply of Goods or for rendering Services in the GST-R1. Once this marker is introduced in the Return GST-R2 / GST-R2A, then it will be easy to segregate only the invoices related to provision of services and data therein can be subjected for data analytics and cross verification with TRACES/Form 26 AS to generate business intelligence.

4.1 (c). Recommendation for solution:

The marker could be in the form of internationally followed standard coding systems such as HSN Code and SAC code.

HSN Code stands for Harmonious System of Nomenclature and it is an eight digit code used for describing every unique goods.

SAC Code stands for Service Accounting Code and it is a six digit code used for describing every unique services.

Extracts of SAC code downloaded is as under:-

If this SAC code is incorporated invoice wise in the Return Form GSTR 1, then it would enable the TDS administrator to identify and segregate only those invoice records pertaining to TDS application and map them against the relevant sections under the Income Tax Act for cross verification. Under the GST Act it is mandatory for all assesses making supplies (Turnover) more than INR 1.50 cores to state the HSN / SAC in their invoice to the recipient. The invoice issued under the GST is said to be proper only if the same contains the unique HSN and SAC. Hence the system already makes it mandatory to state HSN/ SAC for every line item issued in the invoice. Hence making the same available in the GSTR 1/ GSTR 2A does not add any additional burden to the tax payers.

4.2 Items under Reverse Charge Mechanism (RCM):-

As has been discussed in para 3.1, in the of RCM cases, there is no liability for the Service provide to pay GST. Alternatively, it is the Client (Receiver of the service) who fulfills the responsibilities under GST as well as TDS. Since there are no two parties involved in these cases consequently, there are no checks and balances which are present in Forward charge cases, and hence there is more likelihood of TDS defaults in these cases.

4.2 (a) In respect of domestic transactions, the relevant data in RCM cases could be extracted from Item no 4 of GST-R2/Item no 4(A)(3) of GST-R3B which is in vogue at present and compliance to the TDS provisions could be examined.

4.2 (b) Similarly, in respect of Import of Goods and Services, the same is deemed as Inter State Supply of goods and services under GST. In these cases, Integrated Tax (IGST) is required to be paid by the importer in India under Reverse Charge Mechanism (RCM). This information relating to the same also required to be disclosed in the Return GSTR 2 / GSTR-3B Item 4(A)(2).

Based on the above, the TDS compliance with reference to Section 195 of the Income Tax Act can be verified and necessary corrective action can be taken.

4.2 (c) Further, as per sec 9(4) of the CGST Act, if the dealer avails Goods or Services from the unregistered GST dealer (whose Turnover is less than INR 20 lakhs), that dealer being the service recipient shall pay the GST under reverse charge. This provision in GST Act is suspended for the time being. When it is made operational in future, expenses like contracts, security service provider for whom TDS u/s 194C may get covered and compliance can be enforced under TDS provisions in respect of those payments. This will widen the tax base as well as augment TDS collections.

4.3 E-Commerce Operators:

In recent times, there is a proliferation of e-commerce operators in the market. With their unconventional style of operation and uncommon business models, they pose new challenges for tax administrators especially to the TDS administrators. In such situation, col 4C and 5B of GSTR-1 captures supplies of Goods/services through e-commerce operations or by e-commerce operators. The commission income accrues to the e-commerce operators can be collected and analyzed to examine compliance to TDS provisions.

5. Conclusion:

The GSTN eco system is a gold mine for data analytics as it captures the information on the transactions carried out by the businesses on a real time basis in a comprehensive way. Collaboration with GSTN will empower the TDS administrators to enforce TDS provisions in a cost effective and non-intrusive manner with speed and precision. Building a robust platform for seamless exchange of data will go a long way to promote voluntary compliance, widen the tax base, increase TDS collections, arrest tax evasion and thus better tax administration.

6. Recommendations:

In the light of the above discussion, the following recommendations are submitted for the consideration of CBDT for collaboration with GSTN, to leverage the comprehensive e-governance initiative of GSTN, in order to improve the implementation of TDS provisions and to maximize TDS collections:-

To recommend to GST Network Pvt Ltd to include a marker in the form of HSN or SAC code (which is being followed by the tax payers in their paper invoice) in their digital return form GSTR-1;

♦ To create a digital platform in Income Tax Department to receive GSTN data, do data mining and to generate actionable intelligence for use by the field formation;

To sensitise officers of ITD about the utilisation of GSTN database.

Source- CBDT Taxalogue Magazine Jul – Oct 19 | Volume 1 | Issue 1

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