Tax Deducted at Source

1) What is TDS ?

TDS: Tax Deducted at source under GST. Section 51 of the CGST Act 2017 provides for

  • deduction of tax by the Government Agencies (Deductor) or any other person to be notified in this regard,
  • from the payment made or credited to the supplier (Deductee) of taxable goods or services or both,
  • where the total value of such supply, under a contract, exceeds two lakhs and fifty thousand rupees.
  • The amount deducted as tax under this section shall be paid to the Government by deductor within ten days after the end of the month in which such deduction is made
  • Along with a return in FORM GSTR-7 giving the details of deductions and deductees

The subject section which provides for tax deduction at source was not notified to come into force with effect from 1st July, 2017, the date from which GST was introduced. Government has recently notified that these provisions shall come into force with effect from 1st October, 2018, vide Notification No. 50/2018 – Central Tax dated 13th September, 2018.

2) Who are the Persons Liable to Deduct tax ?

Following persons shall be liable to deduct TDS @ 2% (1% CGST and 1% SGST or 2% for IGST):

1) a department or establishment of the Central Government or State Government

  1. The term Government as defined in clause 26A in section 65B being inserted by the Finance Bill, 2015 means and includes the following-
  2. Central Government and its departments of Central Government,
  3. State Government and its departments, and
  4. A Union Territory and its departments
  5. Department of the Government like Revenue, Economic Affairs, or Disinvestment which are attached to respective ministry of Finance of Central Government would be regarded as the deductor

2) Local Authority

  1. Panchayat as defined in clause (d) of Article 243 of the Constitution,
  2. Municipality as defined in clause (e) of Article 243P of the Constitution,
  3. Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central or any State Government with the control or management of a municipal or local fund
  4. Cantonment Board as defined in section 3 of the Cantonments Act, 2006
  5. Regional Council or a District Council constituted under the Sixth Schedule to the Constitution;
  6. Development Board constituted under Article 371 and article 371J of the Constitution
  7. Regional Council constituted under Article 371A of the Constitution

3) Governmental Agencies

4) an authority or a board or any other body, –

  • a) Set up by an Act of Parliament or a State Legislature; or
  • b) Established by any Government, with fifty-one per cent. or more participation by way of equity or control, to carry out any function

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

6) Public sector undertakings.

3) TDS Registration

1) Sec 24(vi) of the CSGT act requires, every person who are required to deduct tax whether or not registered under this ACT shall obtain a registration.

2) Hence a TDS deductor has to compulsorily register without any threshold limit.

3) The deductor has a privilege of obtaining registration under GST without requiring PAN. He can obtain registration using his Tax Deduction and Collection Account Number (TAN) issued under the Income Tax Act, 1961.

4) Application for Registration to be filed in REG-07.

5) Registration certificate to be issued in REG-06.

6) If proper officer is satisfied that a person no longer liable to deduct tax, he may cancel registration in REG-08.

4) What is the Thresh hold for Deduction ?

1) Tax to deducted only if total value of supply under the contract exceeds Rs. 2,50,000/-

2) Example 1 –

a. ABC Contractors received the 4-purchase order from Bangalore Municipality.

  • i. Order 1 for Rs. 2 lakhs + GST 18% = 2,36,000/-
  • ii. Order 2 for Rs. 3 lakhs – Exempted Goods
  • iii. Order 3 for Rs. 2.4 lakhs + GST 5% = 2,52,000/-
  • iv. Order 4 for Rs. 2.5 lakhs + GST 12% = 2,80,000/-

b. Applicable

  • i. TDS is applicable only to order 4

c. Not applicable

  • i. Order 1 – Value less than 2.5 lacs
  • ii. Order 2 – Exempted Goods
  • iii. Order 3 – Taxable Value less than 2.5 lacs
  • iv. – no TDS will be deducted as the limit of Rs. 2.5 lakhs is not exceeded.

As per the explanation provided, the value of supply shall not include central tax, State tax, Union territory tax, integrated tax and cess indicated in the invoice.

3) Example 2 –

a. ABC Contractors received the a Purchase order for 4.5 lacs; the break upof the supplies are as follows

  • i. 1.5 lacs are at 5%
  • ii. 1 lac is at 12%
  • iii. 25k is at 18%
  • iv. 2,25,000/- is of exempted supplies

TDS would not be applicable since taxable goods or services or both(2.25lacs), where the total value of such supply, under a contract(worth 4.5 lacs), does NOT exceeds two lakh and fifty thousand rupees

5) By When and how TDS has to be deducted ?

1) Tax to be deducted at the time of payment or credit to the supplier of taxable goods or services

a. Since the Act is silence on the point of time

b. We can consider earliest of both.

2) This shall be deducted at 2% of Transaction Value

a. For intrastate transactions it would be

i. 1% CGST

ii. 1% SGST

b. For interstate transactions it would be 2% IGST

3) This 2% has to be deducted on the NET amount payable to the contractor

4) 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.

5) For instance, suppose

a. a supplier makes a supply worth Rs. 10,00,000/- to a Govt Recipient and the GST @ rate of 18% is required to be paid i.e. 1,80,000/-.

b. So Total value of the transaction is 11,80,000/-

c. The recipient, while making the payment of Rs. 11,80,000/- to the supplier, shall deduct 1% CGST on Rs.10,00,000/- i.e. Rs. 10,000/- as TDS.

d. The value for TDS purpose shall not include 18% GST.

6) Transition Provisions

a. There are no Transition provisions set in the Act about TDS

b. Going by the applicability we can say the provisions comes into effect from 1st Oct 2018

c. Point of Taxation can be reckoned as Payment or Credit whichever is earlier.

d. Let has have some FAQ’s in understanding the provision of timing.

Q: Contract awarded before 30th Sept, work completed after 30th September

Ans: TDS is applicable since Bill submitted after 1st Oct 2018

Q: Contract awarded before 30th Sept, work completed before 30th September bill submitted after 1st Oct 2018

Ans: TDS is applicable since Bill submitted after 1st Oct 2018

Q: Contract awarded before 30th Sept, work completed before 30th September bill submitted before 30th Sept 2018, but approved and processed for payment after 1st Oct 2018

Ans: TDS is applicable since credit given by the Govt agency is after 1st Oct 2018

Q: Contract awarded before 30th Sept, work completed before 30th September bill submitted before 30th Sept 2018, approved and processed for payment before 30th Sept 2018, but payment is made after 1st Oct 2018

Ans: TDS is NOT Applicable since credit of this transaction recognised by the Govt party before 30th Sept 2018

Q: Contract awarded before 30th Sept, 50% Mobilisation advance paid before 30th Sept 2018, work completed after 30th September

Ans: TDS is applicable only to the portion of 50% of the Transaction value, since credit and payment of the balance 50% is happening after 1 st Oct 2018

6) After deducting by when to Deposit TDS with the Government

1) The amount of tax deducted at source should be deposited to the Government account by the deductor by 10th of the succeeding month.

2) The deductor would be liable to pay interest if the tax deducted is not deposited within the prescribed time limit.

3) This deposit to the Government can be made thru the Challan on the common portal

a. Option I: Generation of challan for every payment made during the month

b. Option II: Bunching of TDS deducted from the bills on weekly, monthly or any periodic manner

4) The PERSON INCHARGE shall login into the GSTN Portal (using his GSTIN) and generate the CPIN (Challan). In the CPIN he shall have to fill in the desired amount of payment against one/many Major Head(s) (CGST/SGST/UTGST/IGST) and the relevant component (e.g. Tax) under each of the Major Head.

5) While generating the CPIN, the PERSON INCHARGE will have to select mode of payment as either (a) NEFT/RTGS or (b) OTC. In the OTC mode, the PERSON INCHARGE will have to select the Bank where the payment will be deposited through OTC mode.

7) When TDS is not Applicable ?

1) Exemption of CGST has been granted for intra-state supplies received from the unregistered supplier by the deductor.

Notification No.9/2017-Central Tax (Rate) But the said exemption is subject to condition that deductor is being registered under the act only by virtue of section 24(vi).

2) No deduction shall be made if the location of supplier and place of supply is in state which is different from state or union territory of registration of recipient.

(a) Supplier, place of supply and recipient are in the same state. It would be intra-State supply and TDS (Central plus State tax) shall be deducted. It would be possible for the supplier (i.e. the deductee) to take credit of TDS in his electronic cash ledger.

(b) Supplier as well as the place of supply are in different states. In such cases, Integrated tax would be levied. TDS to be deducted would be TDS (Integrated tax) and it would be possible for the supplier (i.e. the deductee) to take credit of TDS in his electronic cash ledger.

(c) Supplier as well as the place of supply are in State A and the recipient is located in State B. 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. So, in such cases, TDS would not be deducted.

8) What are the relevant Return to be filed ?

Return to be furnished in GSTR-7. The details of deduction shall also be available to supplier in GSTR2 A/4A. No Annual return is required to be furnished by deductor.

By 10th of Next Month

  • Pay Tax
    • Sec 51(2)
    • PMT – 06
  • File Return
    • Sec 39(3)
    • GSTR – 7

9) GSTR 7

1) This section contains all the table wise reporting

2) Table 1 & 2 : Auto populated

GSTR-7 Table 1

3) Details of the tax deducted at source: Information to be supplied of all deducted

  • a. GSTIN of the deductee,
  • b. total amount and
  • c. TDS amount(Central/state/integrated.)

GSTR-7 Table 3

4) Amendments to details of tax deducted at source in respect of any earlier tax period: As available in the amendment tables of the regular returns, any correction to the data submitted in the return of previous months can be done in this table. Corrections this table would ament the TDS certificate (GSTR-7A).

GSTR-7 Table 4

5) TDS Payment details: Details of the tax (integrated/central/state) amount deducted from the deductee and the tax (integrated/central/state) amount paid to the government.

GSTR-7 Table 5

6) Interest, late Fee payable and paid: If there is any interest fees or late fees applicable on TDS amount, you must mention the details of such interest and late fees payable along with the amount paid till date.

GSTR-7 Table 6

7) Refund of Balance in Electronic cash ledger: Erroneous Excess payment of taxes can be claim as refund.

GSTR-7 Table 7

8) Debit entries in electronic cash ledger for TDS/interest payment (to be populated after payment of tax and submissions of return):

GSTR-7 Table 8

10) Form and manner in which TDS Certificate to be issued

1) The PERSON INCHARGE shall generate TDS Certificate through the GST Portal in FORM GSTR-7A after filing of Monthly Return.

2) A TDS certificate is required to be issued by deductor (the person who is deducting tax) in Form GSTR-7A to the deductee (the supplier from whose payment TDS is deducted), within 5 days of crediting the amount to the Government.

3) Failing which the deductor would be liable to pay a late fee of Rs. 100/- per day from the expiry of the 5th day till the certificate is issued.

4) This late fee would not be more than Rs. 5000/-.

5) The TDS, so deducted, shall be deposited in the account of Government by 10th of the succeeding month.

6) The TDS so deposited in the Government account shall be reflected in the electronic cash ledger of the supplier (i.e. deductee) who would be able to use the same for payment of tax or any other amount.

11) Certificate Format: 7A

Form GSTR 7A

see rule 66(3)

Tax Deduction at Source Certificate

  1. TDS Certificate No. –
  2. GSTIN of deductor –
  3. Name of deductor –
  4. GSTIN of deductee–
  5. (a) Legal name of the deductee – (b) Trade name, if any –
  6. Tax period in which tax deducted and accounted for in GSTR-7 –
  7. Details of supplies Amount of tax deducted –

GSTR-7A Table 1 GSTR-7A Sign

12) Tax Utilisation by Recipient

51 (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 prescribed.

Tax Utilisation image

This TDS can be utilised by the recipient for

a) Payment of Taxes

b) Payment of interest, penalty, late fee or any other amount

As per Rule 87(1)

13) Consequences of Non-Compliance

1) Non-Filing of the Return’s:

a. Last fee of Rs.100 per day per Act

b. Maximum late fee would be Rs.5000 per month

2) Late payment of Tax Deducted

a. Interest to be paid @18% per annum

3) Deducted but Not paid: Deposited can be assed under sec 73 and 74 of the act for the penal provisions on evasion of taxes.

14) Refund of Excess Tax Paid by the Deductor and Deductee

1) In the case of excess TDS paid or erroneous deducted, either deductor or deductee can claim the refund.

2) Refund shall NOT be granted to the deductor if the amount deducted has been credited to the electronic cash ledger of the deductee.