Tax Deduction at Source (TDS)
is a system, initially introduced by the Income Tax Department. It is one of
the modes/methods to collect tax, under which, certain percentage of amount is
deducted by a recipient at the time of making payment to the supplier. It is
similar to “pay as you earn” scheme also known as Withholding Tax, in many
other countries. It facilitates sharing of responsibility of tax collection between
the deductor and the tax administration. It also ensures regular inflow of cash
resources to the Government. It acts as a powerful instrument to prevent tax
evasion and expands the tax net, as it provides for the creation of an audit
trail. Under the GST regime, section 51 of the CGST Act, 2017 prescribes the
authority and procedure for ‘Tax Deduction at Source’. The government may order
the following persons (the deductor) to deduct tax at source:
(a) A department or an
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 tax would be deducted
@1% of the payment made to the supplier (the deductee) of taxable goods or services
or both, where the total value of such supply, under a contract, exceeds two
lakh fifty thousand rupees (excluding the amount of Central tax, State tax, Union
Territory tax, Integrated tax and cess indicated in the invoice). Thus,
individual supplies may be less than Rs. 2,50,000/-, but if contract value is
more than Rs. 2,50,000/-, TDS will have to be deducted. However, no deduction
shall be made if the location of the supplier and the place of supply is in a
State or Union territory, which is different from the State, or as the case may
be, Union Territory of registration of the recipient. The earlier statement can
be explained in the following situations:
(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. Thus, when both the supplier as well as
the place of supply are different from that of the recipient, no tax deduction
at source would be made.
Registration
of TDS deductors: A TDS deductor has to compulsorily register without any threshold
limit. 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.
Deposit of TDS with the
Government: The amount of tax deducted at source should be deposited to the Government
account by the deductor by 10th of the succeeding month. The deductor would be
liable to pay interest if the tax deducted is not deposited within the
prescribed time limit.
TDS Certificate: 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, 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.
This late fee would not be more than Rs. 5000/-. 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. For instance, suppose a supplier makes a supply
worth Rs. 1000/- to a recipient and the GST @ rate of 18% is required to be
paid. The recipient, while making the payment of Rs. 1000/- to the supplier,
shall deduct 1% viz Rs. 10/- as TDS. The value for TDS purpose shall not
include 18% GST. The TDS, so deducted, shall be deposited in the account of
Government by 10th of the succeeding month. 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. The purpose of TDS is just to enable the Government to
have a trail of transactions and to monitor and verify the compliances.
TDS Return: The deductor is also required to file a return in Form GSTR-7 within
10 days from the end of the month. If the supplier is unregistered, name of the
supplier rather than GSTIN shall be mentioned in the return. The details of tax
deducted at source furnished by the deductor in FORM GSTR-7 shall be made available
to each of the suppliers in Part C of FORM GSTR-2A electronically through the
Common Portal and the said supplier may include the same in FORM GSTR-2. The
amounts deducted by the deductor get reflected in the GSTR-2 of the supplier
(deductee). Thesupplier can take this amount as credit in his electronic cash
register and use the same for payment of tax or any other liability. Consequences
of not complying with TDS provisions:
Sr. no
|
Event
|
Consequences
|
1
|
TDS not Deducted
|
Interest to be paid
along
with the TDS amount;
else the amount shall
be determined and
recovered as per the
law
|
2
|
TDS certificate not
issued or delayed
beyond the
prescribed period
of five
days
|
Late fee of Rs. 100/-
per day subject to a
maximum
of Rs. 5000/-
|
3
|
TDS deducted
but not paid to
the Government
or paid later
than 10th of the
succeeding
month
|
Interest to be paid
along
with the TDS amount;
else the amount shall
be determined and
recovered as per the
law
|
4
|
Late filing of TDS
Returns
|
Late fee of Rs. 100/-
for
every day during which
such failure continues,
subject to a maximum
amount of five thousand
rupees
|
Any excess or erroneous
amount deducted and paid to the Government account shall be dealt for refund under
section 54 of the CGST Act, 2017. However, if the deducted amount is already
credited to the electronic cash ledger of the supplier, the same shall not be refunded.
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