Reader might be aware about the term ‘Tax Deduction at Source’ – TDS, what we often hear during the discussions of Income Tax. Often we hear TDS been deducted from the salaries of the employees or Contractor deducting TDS from the payments made to Contractee.
TDS under GST laws is very similar to the TDS under Income Tax laws.
Nevertheless, let us first understand what TDS is..??
TDS is the tax deducted by the Payer from the income earned by the Payee. Payer pays the agreed amount to Payee after deducting required tax amount or notified percentage. And therefore Payee receives the net amount after the deduction of required tax. As Tax is deducted from the very source of income, such deduction is called Tax Deduction at Source. The person deducting TDS is termed as Deductor and the person to whom payment is made after deducting TDS is termed as Deductee.
TDS under GST:
Section 51 of CGST Act, 2017 governs TDS.
Following are the important points under this provisions:
- TDS is applicable to the contract of supply of goods or services or both made to specified entities. We shall discuss such entities later in this article.
- Specified entities shall be required to deduct TDS from the payment made to the Supplier or the Deductee.
- Deduction shall be made from the payment made or credited to the Supplier, i.e. TDS is deducted from the income on accrual basis, which means credit or payment whichever is earlier.
- Value of supply under such contract should exceeds ₹2,50,000.
- Taxes under GST shall not be considered while determining the contract value as well as for the purpose of deduction of TDS.
- Rate of deductions shall be 1% under CGST, 1% under SGST & 2% under IGST.
As there is no specific provision of TDS under IGST Act, Section 20 states that the provisions of CGST Act relating to tax deduction at source shall apply accordingly as if the provisions of CGST Act are enacted under this Act. And therefore in the case of tax deducted at source, the deductor shall deduct tax at the rate of two percent from the payment made or credited to the supplier.
Payment, Monthly Return & Annual Return:
- Deductors shall pay TDS so deducted to the Government Treasury within ten days subsequent to the month in which such deduction is made i.e. by 10th of subsequent month.
- Deductor of TDS shall furnish a monthly return in FORM GSTR-7 electronically within 10 days of end of relevant month i.e. on or before 10th of subsequent month in which deduction is made.
- Interest at the rate of 18% per annum shall be applicable in case of delay payment.
- If Deductor fails to deduct the tax in accordance with the provisions or deducts an amount which is less than the amount required to be deducted or where he fails to pay to the Government after the amount deducted as tax, he shall be liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax not deducted or short deducted or deducted but not paid to the Government, whichever is higher. Equivalent interest shall be applicable under SGST laws and double the amount shall be applicable under IGST laws.
Certificate of TDS & Credit of TDS to Deductee:
- The certificate of TDS shall be available electronically to the deductee in FORM GSTR-7A.
- The deductor shall furnish a certificate to the Deductee for the Tax so deducted within five days of payment of Tax to the Government.
- If any deductor fails to furnish the certificate to the Deductee, within said five days, the deductor shall pay a sum of one hundred rupees per day from the day of such default until the certificate is issued, by way of a late fee or penalty. Maximum amount of late fee is ₹5,000. Equivalent late fees or penalty shall be applicable under SGST laws and double the amount mentioned shall be applicable under IGST laws.
- The Deductee will able to claim credit of Tax so deducted in his electronic cash ledger.
- Details of deductions & other particulars filed in return by Deductor shall be available to each of the Deductee in Part C of FORM GSTR-2A and FORM-GSTR-4A.
Specified Entities who are required to deduct TDS:
- A department or establishment of the Central Government or State Government e.g. Income Tax Department, Goods & Service Department, Department of Commerce etc.
- Local authority e.g. Municipal Corporations, Nagar Palika, Nagar Panchayat, Gram Panchayat etc.
- Governmental agencies e.g. National Highway Authority of India, Telecom Regulatory Authority of India (TRAI), Election Commission of India etc.
- An authority or a board or any other body set up by an Act of Parliament or a State Legislature or established by any Government e.g. Board of Control for Cricket in India (BCCI), Indian Olympic Association (IOA), Company Law Board, Central Board of Direct Taxes, Central Board of Indirect Taxes and Customs, Gujarat Secondary Education Board, Maharashtra State Board of Secondary and Higher Secondary Education etc.
- Society established by the Central Government or the State Government or a Local Authority under the Societies Registration Act, 1860 e.g. Society for Applied Microwave Electronic Engineering and Research (SAMEER), Central Government Employees Consumer Cooperative Society Ltd. (Kendriya Bhandar), Society for Integrated Circuit Technology and Applied Research etc.
- Public sector undertakings e.g. Hindustan Copper Limited (HCL), National Aluminium Company Limited (NALCO), Indian Railway Catering and Tourism Corporation (IRCTC) etc.
Notification # 57/2018 – Central Tax dated 23rd October, 2018 has exempted the authorities under the Ministry of Defence from applicability of law relating to TDS.
Notification # 61/2018 – Central Tax dated 5th November, 2018 has exempted the supply of goods or services or both from a public sector undertaking to another public sector undertaking, whether or not a distinct person.
- Section 24 makes it compulsory for the Deductor to register under GST for the purpose of adhering laws relating to TDS.
- Any person required to deduct tax shall apply for registration in FORM GST REG-07 for the grant of registration.
- A certificate of registration in FORM GST REG-06 shall be issued within a period of three working days from the date of submission of the application.
Notification No. 50/2018 – Central Tax dated 13th September 2018 has made mandatory for specified entities to deduct TDS on necessary transactions.