The concept of Tax Deduction at Source (TDS) was there in the erstwhile VAT Laws. GST Law also mandates Tax Deduction at Source (TDS) vide Section 51 of the CGST/SGST Act 2017, Section 20 of the IGST Act, 2017 and Section 21 of the UTGST Act, 2017. GST Council in its 28th meeting held on 21.07.2018 recommended the introduction of TDS from 01.10.2018.

As per Section 51 of CGST Act, 2017, the following class of persons or categories of persons were notified to deduct tax at the rate of [1% CGST & 1% SGST or 2% IGST] where the total taxable contract value of such supply, exceeds two lakh and fifty thousand rupees:

(a) Department or establishment of the Central Government or State Government; or

(b) Local authority; or

(c) Governmental agencies; or

(d) Such persons or category of persons as may be notified by the Government on the   recommendations of the Council

The following class of person were notified to deduct TDS on GST vide Notification No. 33/2017-Central Tax dated 15.09.2017:

(e) 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; or

(f) a society established by the Central Government or the State Government or a Local Authority under the Societies Registration Act, 1860 (21 of 1860); or

(g) Public sector undertakings.

Purpose of Introduction of TDS on GST

The purpose of introduction of TDS on GST is to enable the Government to have a track of transactions third parties(Private parties) have with persons notified under this section and verify whether the GST collected from Notified persons is discharged or not.

When tax is required to be deducted in GST?

1. Total taxable contract value > Rs.2.5 Lakh under a single contract. This value shall exclude taxes & cess leviable under GST.

For example: M/s ABC Ltd enters into a contract with M/s ONGC to supply drilling equipment worth Rs. 2,55,000 including GST @18%. TDS on GST will NOT be applicable in this case since Taxable Value under the Contract is less than Rs. 2.5 lakh.

2. If the contract is made for both taxable supply and exempt supply, deduction will be made if the total value of supply in the contract > Rs.2.5 Lakh. This value shall exclude taxes & cess leviable under GST.

For example:  M/s ABC Ltd enter into a contract with M/s ONGC to supply drilling equipment worth Rs. 2,55,000 including GST @18% and distilled water(exempted under GST) for Rs. 50,000. TDS on GST shall be applicable in this case since Contract Value is more than Rs. 2.5 lakh.

3. When advance is paid to a supplier on or after 01.10.2018 to a supplier for supply of taxable goods or services or both.

4. When Supplier is registered under composition scheme and taxable Value of such supply exceeds Rs. 2.5 lakh.

5. If contract value is more than Rs. 2.5 lakh and payment is made in several instalments, then GST TDS is required to be deducted on the amount paid w.r.t. each instalment.

When tax is not required to be deducted in GST?

1. Total value of taxable supply ≤ Rs. 2.5 Lakh under a contract. Invoice value >Rs. 2.5 Lakh for both taxable supply and exempted supply, but the value of taxable supply under the said contract ≤ Rs. 2.5 Lakh.

No deduction of tax and cess should also be made on the value of exempted goods or services or both even if the exempt and taxable supply is billed together.

2. If supply is made without any contract, then the limit of Rs. 2.5 lakh will be checked for each supply instead on cumulative basis.

For example: M/s ABC Ltd supplies drilling equipment worth Rs. 2,55,000 and Rs. 1,55,000 including GST @18% to M/s ONGC without entering into any contract. TDS on GST shall not be applicable since taxable value of individual supplies doesn’t exceed the prescribed limit.

3. If supply is made in accordance with any Rate Contract, but the total contract value is not specified, then (in my opinion) TDS on GST should be deducted even if individual invoice value is less than prescribed limit.

4. Receipt of goods/services which are exempted.

5. Goods on which GST is not leviable. For example petrol, diesel, petroleum crude, natural gas, aviation turbine fuel (ATF) and alcohol for human consumption.

6. Where a supplier had supplied any goods or services before 01.10.2018 but where payment for such supply is made on or after 01.10.2018.

7. All activities or transactions specified in Schedule III of the CGST/SGST Acts 2017, irrespective of the value.

For example: High sea purchase.

8. Where any amount was paid in advance prior to 01.10.2018 and the tax invoice has been issued on or after 01.10.18, to the extent of advance payment made before 01.10.2018.

For example: M/s ABC Ltd received Rs. 1,00,000 as advance from M/s ONGC on 15.09.2018 for supply worth Rs. 3,00,000 to be made after 01.10.2018, TDS on GST would be applicable only on the balance portion of Taxable Value.

9. Where the tax is to be paid on reverse charge by the recipient.

10. Where the payment is made to an unregistered supplier.

11. Where the payment relates to “Cess” component.

12. Import of Goods/Services.

13. As per Notification No. 61/2018-Central Tax dated 05.11.2018, TDS on GST shall not apply to the supply of goods or services or both from a public sector undertaking to another public sector undertaking.

14. As per Notification No. 73/2018-Central Tax dated 31.12.2018, TDS on GST shall not apply to the supply of goods or services or both between persons specified in Sec 51 of CGST Act 2017 for deduction of TDS.

15. Where the location of the supplier and place of supply is in a State(s)/UT(s) which is different from the State/UT where the deductor (recipient) is registered.

For example:

Value of supply for deduction of TDS

Base value i.e. Taxable Value should be considered for deduction of TDS. In case advance is paid to a supplier in respect of a transaction covered under GST TDS, TDS is required to be deducted on amount paid, i.e. grossing up of advance paid.

For example: Central Government pays an advance of Rs. 10,00,000 to a contractor. In this Rs. 9,80,000 is paid to the vendor and Rs. 20,000 is deducted as GST TDS.

Registration of deductor of tax in GST

Section 24(vi) of the CGST Act, 2017 provides for compulsory liability for registration for the deductor of TDS. Therefore, even if a person is registered as a Normal Taxpayer under the law, it will be required to take a fresh registration for the purpose of deduction of TDS on GST.

This new GST registration can either be based on PAN or TAN of the Taxpayer.

Usually GST TDS Registration is characterised by “D” as second last character.

Payment of TDS on GST by Deductor (Recipient) 

1. 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.

2. GSTR 7 is the return notified by the Government for this purpose. In this return, Total Taxable Amount, GSTN of supplier, Amount of TDS deducted is required to be furnished. This return is required be filed by 10^th of next month.

3. If no TDS is deducted by the deductor, then GSTR-7 for that month is not required to be filed. However, in case of any amendment in earlier deductions reflecting in the amendment tab, then GSTR-7 is required to be filed.

Acceptance of TDS on GST by Deductee (Supplier) 

1. Once GSTR-7 is filed by the deductor, the detail of such deduction reflects on normal portal of the supplier under Services->Returns->TDS and TCS received tab.

The amount deducted will also reflect in GSTR-2A of the supplier under TDS/TCS Received Tab.

2. The supplier has to select the year and month of deduction from the drop down list.

3. The supplier is required to either Accept or Reject the TDS/TCS Received and file the return.

The amount accepted by the supplier will reflect in his Electronic Cash Ledger.

The amount rejected by the supplier will revert back to the Deductor under its Amendments Tab in its next month Return. The deductor will correct the details of deduction and re-upload the same.

4. After acceptance, the deductee can download the Certificate of Deduction of Tax at source.

Under Services-> User Services -> View/Download Certificates -> Form GSTR 7A –> TDS Certificate.

Then select Return period and year and download Certificates Deductor wise.

Late fee, interest and penalty

If the deductor fails to furnish the return in FORM GSTR-7 by the due date (i.e. within 10 days of the succeeding month in which deduction was made) he shall be liable pay a late fee of Rs. 100 per day under CGST Act during which such failure continues subject to a maximum amount of Rs. 5000. 

Limitations

 GSTR-7 doesn’t require Invoice wise transaction details, rather only cumulative figures (GSTN of supplier, Total taxable value, Tax deducted) are required to be reported. This gives rise to a situation where the supplier is unaware, as to for which invoices TDS is deducted by the deductor.

Conclusion

This section was introduced to enable the Government to track transactions between notified persons (who don’t file returns like Central Government and State Government etc.) and private parties. Persons notified under sub-clause “(d)” vide Notification 33/2017, were already registered under the Act as regular taxpayers and filing their GST returns. Thus, TDS on GST should not have been notified for persons already registered as regular taxpayers.

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