TDS MECHANISM UNDER GST: EximGuru.com
TDS MECHANISM UNDER GST
Tax Deduction at Source (TDS) is a system, initiallyintroduced by the Income Tax Department. It isone of the modes/methods to collect tax, underwhich, certain percentage of amount is deductedby a recipient at the time of making payment to thesupplier. It is similar to “pay as you earn” scheme alsoknown as Withholding Tax, in many other countries.It facilitates sharing of responsibility of tax collectionbetween the deductor and the tax administration.It also ensures regular inflow of cash resources tothe Government. It acts as a powerful instrument toprevent tax evasion and expands the tax net, as itprovides for the creation of an audit trail.
Under the GST regime, section 51 of the CGST Act,2017 prescribes the authority and procedure for ‘TaxDeduction at Source’. The Government may orderthe following persons (the deductor) to deduct taxat source:
(a) A department or an establishment of the CentralGovernment or State Government; or
(b) Local authority; or
(c) Governmental agencies; or
(d) Such persons or category of persons asmay be notified by the Government on therecommendations of the Council.
The tax would be deducted @1% of the payment madeto the supplier (the deductee) of taxable goods orservices or both, where the total value of such supply,under a contract, exceeds two lakh fifty thousandrupees (excluding the amount of Central tax, State tax,Union Territory tax, Integrated tax and cess indicated inthe invoice). Thus, individual supplies may be less thanRs. 2,50,000/-, but if contract value is more than Rs.2,50,000/-, TDS will have to be deducted. However, nodeduction shall be made if the location of the supplierand 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 followingsituations:
(a) Supplier, place of supply and recipient are in thesame state. It would be intra-State supply and TDS(Central plus State tax) shall be deducted. It wouldbe possible for the supplier (i.e. the deductee) totake credit of TDS in his electronic cash ledger.
(b) Supplier as well as the place of supply are indifferent states. In such cases, Integrated taxwould be levied. TDS to be deducted would beTDS (Integrated tax) and it would be possible forthe supplier (i.e. the deductee) to take credit ofTDS in his electronic cash ledger.
(c) Supplier as well as the place of supply are in StateA and the recipient is located in State B. The supplywould be intra-State supply and Central tax andState tax would be levied. In such case, transfer ofTDS (Central tax + State tax of State B) to the cashledger of the supplier (Central tax + State tax ofState A) would be difficult. So in such cases, TDSwould not be deducted.
Thus, when both the supplier as well as the place ofsupply are different from that of the recipient, no taxdeduction at source would be made.
Registration of TDS deductors: A TDS deductor hasto compulsorily register without any threshold limit.The deductor has a privilege of obtaining registrationunder GST without requiring PAN. He can obtainregistration using his Tax Deduction and CollectionAccount Number (TAN) issued under the Income TaxAct, 1961.
Deposit of TDS with the Government: The amount oftax deducted at source should be deposited to theGovernment account by the deductor by 10th of thesucceeding month. The deductor would be liable topay interest if the tax deducted is not deposited withinthe prescribed time limit.
TDS Certificate: A TDS certificate is required to beissued by deductor (the person who is deducting tax)in Form GSTR-7A to the deductee (the supplier fromwhose payment TDS is deducted), within 5 days ofcrediting the amount to the Government, failing whichthe deductor would be liable to pay a late fee of Rs.100/- per day from the expiry of the 5th day till thecertificate is issued. This late fee would not be morethan Rs. 5000/-. For the purpose of deduction of taxspecified above, the value of supply shall be taken asthe amount excluding the Central tax, State tax, Unionterritory tax, Integrated tax and cess indicated in theinvoice.
For instance, suppose a supplier makes a supply worthRs. 1000/- to a recipient and the GST @ rate of 18% isrequired to be paid. The recipient, while making thepayment of Rs. 1000/- to the supplier, shall deduct1% viz Rs. 10/- as TDS. The value for TDS purpose shallnot include 18% GST. The TDS, so deducted, shall bedeposited in the account of Government by 10thof the succeeding month. The TDS so deposited inthe Government account shall be reflected in theelectronic cash ledger of the supplier (i.e. deductee)who would be able to use the same for payment oftax or any other amount. The purpose of TDS is just toenable the Government to have a trail of transactionsand to monitor and verify the compliances.
TDS Return: The deductor is also required to file areturn in Form GSTR-7 within 10 days from the end ofthe month. If the supplier is unregistered, name of thesupplier rather than GSTIN shall be mentioned in thereturn. The details of tax deducted at source furnishedby the deductor in FORM GSTR-7 shall be madeavailable to each of the suppliers in Part C of FORMGSTR-2A electronically through the Common Portaland the said supplier may include the same in FORMGSTR-2. The amounts deducted by the deductor getreflected in the GSTR-2 of the supplier (deductee). Thesupplier can take this amount as credit in his electroniccash register and use the same for payment of tax orany other liability. TDS Return: The deductor is also required to file areturn in Form GSTR-7 within 10 days from the end ofthe month. If the supplier is unregistered, name of thesupplier rather than GSTIN shall be mentioned in thereturn. The details of tax deducted at source furnishedby the deductor in FORM GSTR-7 shall be madeavailable to each of the suppliers in Part C of FORMGSTR-2A electronically through the Common Portaland the said supplier may include the same in FORMGSTR-2. The amounts deducted by the deductor getreflected in the GSTR-2 of the supplier (deductee). Thesupplier can take this amount as credit in his electroniccash register and use the same for payment of tax orany other liability.
Consequences of not complying with TDS provisions:
| S. No. | Event | Consequence |
| 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 paidto the Government account shall be dealt for refundunder section 54 of the CGST Act, 2017. However, if thededucted amount is already credited to the electroniccash ledger of the supplier, the same shall not berefunded.