TDS Implications under GST

Tax Deducted at Source (TDS) is a system introduced by Income Tax Department, where the person responsible for making specified payments is liable to deduct a certain percentage of tax before making payment in full to the receiver of the payment.

But what is the implication of TDS under the GST Mechanism?

Who is liable to Deduct Tax at Source?

The Central Government has notified the following persons for deducting tax:
 51(1)(a) A department or an establishment of the Central Government or State Government; or
 51(1)(b) Local authority; or
 51(1)(c) Governmental agencies; or
 51(1)(d) Such persons or category of persons as may be notified by the Government on the recommendation of the Council*

*The following are the persons notified by Central Government under clause 51(1)(d) above:

a. An authority or a board or any other body 

• Which has been set up by Act of Parliament or a State Legislature with 51% or more participation by way of equity or control, to carry out any function.
  OR
• Established by any government with 51% or more participation by way of equity or control, to carry out any function.

Note: Not only equity participation but also control has to be considered to decide whether TDS has to be deducted. The GST Act does not define the word Control but it should be construed as defined under the Companies Act, 2013 under section 2(27) and such is also held in the advance ruling for WEFIL LTD dated 08.01.2018.

b. A society under the Societies Registration Act, 1860 and established by the Central or any State Government or a Local Authority.

c. Public Sector Undertakings

Who Is Not Liable To Deduct TDS?

1. Authorities under the Ministry of Defence other than the authorities specified in Annexure A and their offices. (Notification No. 57/2018 – Central tax dated 23.10.2018)
   
2. Supply of goods or services or both between persons specified under clause (a), (b), (c) and (d) in subsection (1) of Section 51 (persons mentioned above) of the CGST Act, 2017. (Notification No. 73/2018 – Central tax dated 31.12.2018)

For example, supply of goods/services between two public sector undertakings.

Registration for TDS Deductor

A person liable to deduct TDS shall mandatorily register under GST irrespective of the threshold limits for turnover prescribed under the GST laws. A benefit and ease in the procedure are that registration under GST can be obtained without PAN using the existing Tax Deduction and Collection Account Number (TAN) issued under the Income Tax Act. This means registration can be obtained based on PAN or TAN. A point to be noted is that a taxpayer needs to register separately as a regular taxpayer for carrying on commercial business because Tax Deductor GSTIN is only for TDS related provisions.

When to Deduct Tax?

TDS has to be deducted from the payment made or credited to the supplier for supply of taxable goods or services or both and when the total value (excluding taxes and exempted supplies) of such supply under a contract exceeds INR 2,50,000.

In other words, to be sure whether TDS has to be deducted the total value (excluding taxes and exempted supplies) of an entire contract has to be checked even if it is made up of small individual supplies.

TDS is also deducted on advance paid to supplier on or after 01.10.2018 to a supplier for supply of taxable goods or services or both.

What is the rate of Tax Deducted at Source?

The tax has to be deducted at the rate of 2% (1% CGST & 1% SGST / 2% IGST) on the total value (excluding taxes and exempted supplies) of supply.

Who are the deductees?

The suppliers whose total value (excluding taxes and exempted supplies) of supply of taxable goods or services or both under a contract exceeds INR 2,50,000.

Cases where no TDS shall be deducted

CASE I

When the Location of Supplier (LOS) and the Place of Supply (POS) are in the same state but the Location of Recipient (LOR) is in a different state.

For example:
The supplier is from Maharashtra (LOS) and the Place of Supply (POS) is also in Maharashtra but the recipient is in Delhi (LOR).
In short just check three points:

1. LOS
2. POS
3. LOR

Point 1 & 2 should be same and 3 should be different than 1 & 2, then NO TDS deduction.

CASE II

NO TDS IN THE FOLLOWING CASES:
(SOP issued by Law Committee of GST Council)

** The payment made and invoice issued both, should be after 1.10.2018 for the purpose of tax deduction.

WHAT AFTER TDS HAS BEEN DEDUCTED? DEPOSIT WITH THE GOVERNMENT (GSTR-7)

The amount of tax deducted at source should be deposited to the government account by the deductor on or before 10^th of the succeeding month vide FORM GSTR-7. If the amount has not been remitted to the government within the time period prescribed there shall be levied a penal interest under Section 50 of the CGST ACT, 2017.

For example: The TDS for the month of January 2020 must be deposited with the government on or before 10^th February 2020.

FORM GSTR-7 is a simple return which captures the details of total value and TDS deducted thereon for each deductee. The payment has to be done through a challan like the other returns. The due date of filing FORM GSTR-7 is 10^th day of the succeeding month. A late fee of INR 200 per day shall be leviable if GSTR-7 is not filed within the prescribed due date under Section 47 of the CGST Act, 2017 subject to a maximum of INR 5,000.

The amount of TDS deducted by the deductor and remitted to the government is reflected in the Electronic Cash Ledger of the deductee. However, the amount will be reflected in the Electronic Cash Ledger only after the deductee has accepted the auto-populated details on the portal and has filed the TDS & TCS credit received. Also, in case of discrepancies the deductee has an option to reject a particular TDS deduction transaction.

Note: It is not mandatory to file NIL TDS return.

TDS CERTIFICATE (GSTR-7A)

Certificate (in FORM GSTR-7A) to be issued by the deductor (Recipient) to the deductee (Supplier). It has to be issued on or before 15^th of the succeeding month i.e. within 5 days of crediting the amount to the government.

If the deductor fails to submit the certificate within 5 days of remittance then late fees of INR 200 per day shall be levied from the 16^th of the following month till the date on which the certificate is furnished. However, the late fee is capped at maximum INR 5000.

The certificate can be issued only after the deductor has filed FORM GSTR-7 and deductee has accepted the transactions on the portal.

REFUND OF TDS

The excess or erroneously deducted TDS can be claimed as a refund by the deductor or the deductee as per Section 54 of the CGST Act, 2017.

However, it cannot be claimed as a refund if it is reflected in the Electronic Cash Ledger of the deductee.

The article is based on the author’s interpretation of the GST laws taking into consideration various notifications, circulars and updates issued from time to time and shall always be read along with the relevant legal documents.

Relevant Notifications

Notification No. 50/2018 – Central Tax (Rate) dated 13^th September, 2018

Notification No. 57/2018 – Central Tax (Rate) dated 23^rd October, 2018

Notification No. 73/2018 – Central Tax (Rate) dated 31^st December, 2018

Relevant Section of the CGST Act, 2017

Section 51 of the CGST Act, 2017

Section 47 of the CGST Act, 2017