Tax Deduction at Source (TDS) is a system, initially introduced by the Income Tax Department. It is one of the models/methods to collect tax, under which a certain percentage of amount is deducted by a recipient at the time of making payment or crediting the payment to the supplier. In indirect tax, the concept of TDS was there in the erstwhile VAT Laws of some states. GST Law also mandates deduction of TDS vide sec 51 of the CGST Act, which is applicable to IGST Act vide sec 20 thereof and UTGST Act vide sec 21 thereunder. After being deferred initially till 30.09.2018, GST Council in its 28th meeting held on 21.07.2018 recommended the introduction of TDS from 01.10.2018. To this effect, notification no. 50/2018-central tax dated 13.09.2018 has been issued, notifying effective date of provision of sec 51 of the CGST Act as 01.10.20218
GST Law provide for TDS deduction by the specified category of persons from the payment made or credited to the supplier of taxable goods or services or both at a prescribed rate. The purpose of deducting TDS is just to enable the government to have a trail of transactions and to monitor and verify compliances
As per sec 51(1) of the CGST Act, the government may mandate the following persons (“the deductor“) to deduct tax at the rate of 1% (i.e. 2% when CGST and SGST/UTGST are taken together or 2% in case of IGST²) from the payment made or credited to the supplier (“the deductee“) of taxable goods or services or both, where the total value of such supply, under a contract, exceeds INR 2.5 Lakh
(a) A Department or establishment of the central 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 GST Council
Exercising powers of sec 51(1) of the CGST Act, the government vide notification no. 50/2018 central tax dated 13.09.2018, has notified the persons in clause (a), (b) and (c) above as the persons liable to deduct TDS. As regards clause (d) of sec 51(1), following categories of persons are notified for deducting TDS:
- 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,
With fifty-one percent or more participation by way of equity or control, to carry out any function;
- Society established by the Central Government or State Government or a Local Authority under the Societies Registration Act, 1860 (21 of 1860);
- Public sector undertakings.
Thus, the above specified persons are liable to deduct TDS at the rate of 2% of taxable goods or services, from the payment made or credited to the supplier, where the total value of such supply, under a contract, exceeds INR 2.5 lakhs.
EXCEPTION TO APPLICABILITY OF TDS PROVISIONS
►W.e.f. 01.10.2018
- Exemption to post audit authorities under MoD from TDS compliance
- Exemption to supply from PSU to PSU from applicability of TDS
►W.e.f. 31.12.2018
- Exemption to supplies made by Government Departments and PSUs to other Government Departments and vice-versa
Proviso to sec 51(1) of the CGST Act: As per proviso to sec 51(1), 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.
Example:
To understand this proviso, let us assume following situation matrix as to location of supplier, location of recipient and place of supply
| Cases | Location of supplier | Place of supply | Location of recipient | TDS applicability |
| (a) | UP | Delhi | UP | Yes |
| (b) | UP | Delhi | Delhi | Yes |
| (c) | UP | UP | Delhi | No |
►Judicial outlook:
TDS provision does not apply in case of exempt supplies
- GST has to be deducted at source only in cases of taxable supply. In instant case, since pure supply of waste management services is an exempted supply, there is no requirement of deducted TDS – AAR West Bengal in Re: Singh Transport Agency [2019 (31) G.S.T.L. 161 (A.A.R. – GST)].
- Since TDS is required to be deducted only on taxable supplies of goods and services, no TDS is required to be deducted on supply exempted under S. No. 3 of notification no. 12/2017- central tax (rate) dated 28.06.2017 – AAR, West Bengal in Re Dolphin Techno Waste Management Pvt. Ltd. [2020 (35) G.S.T.L. 413 (A.A.R. – GST – W.B.)].
Co-operative society though established by Govt, not liable to deduct TDS if it is not under control of govt.
Applicant although established by Government of Tamil Nadu as a co-operative society Registered as Apex Society under Tamil Nadu Co-operative Societies Act, 1983 but the equity ownership at present or in the past never beyond 51%, nor is it under the control of the Government as management not having any voting rights as stipulated in its bye laws and by Tamil Nadu Co-operative Societies Act, 1983. Consequently, applicant is not a person or category of person stipulated under notification no. 33/2017-C.T. as amended. Applicant is exempted from recovery of TDS under GST – AAR Tamil Nadu in Re: Tamil Nadu Coop. Silk Producers Federation Ltd. [2020 (32) G.S.T.L. 506 (A.A.R. – GST – T.N.)].
- When tax deduction is not required to be made under GST Tax:
- Total value of taxable supply ≤ Rs. 2.5 Lakh under a contract.
- Contract value > Rs. 2.5 Lakh for both taxable supply and exempted supply, but he value of taxable supply under the said contract ≤ Rs. 2.5 Lakh.
- Receipt of services which are exempted. For example services exempted under notification no. 12/2017 – central tax (rate) dated 28.06.2017 as amended from time to time.
- Receipt of goods which are exempted. For example goods exempted under notification no. 2/2017 – central tax (rate) dated 28.06.2017 as amended from time to time.
- Goods on which GST is not leviable. For example petrol, diesel, petroleum crude, natural gas, aviation turbine fuel (ATF) and alcohol for human consumption.
- Where a supplier had issued an invoice for any sale of goods in respect of which tax was required to be deducted at source under the VAT Law before 01.07.2017, but where payment for such sale is made on or after 01.07.2017 [Section 142(13) refers].
- Where the location of the supplier and place of supply is in a State(s)/UT(s) which is different from the State / UT where the deductor is registered.
- ll activities or transactions specified in Schedule III of the CGST/SGST Acts 2017, irrespective of the value.
- Where the payment relates to a tax invoice that has been issued before 01.10.2018.
- Where any amount was paid in advance prior to 01.10.2018 and the tax invoice has been issued on or after 01.10.18, to the extent of advance payment made before 01.10.2018.
- Where the tax is to be paid on reverse charge by the recipient i.e. the deductee.
- Where the payment is made to an unregistered supplier.
- Where the payment relates to “Cess” component.
- VALUE OF SUPPLY FOR DEDUCTING TDS
For the purpose of deduction of TDS, the value of supply shall be taken as the amount excluding the tax (CGST, SGST/UTGST, IGST, cess) indicated in the invoice – explanation to sec 51(1) of the CGST Act. Thus, no tax shall be deducted on CGST, SGST/UTGST, IGST and cess component levied on supply.
- Procedural compliances of TDS
- Time limit to pay TDS:
As per sec 51(2) of the CGST Act, the amount deducted as tax shall be paid to the Government by the deductor within 10 days after the end of the month in which such deduction is made, in the manner prescribed
- Furnishing of Return
As per rule 66(1) of the CGST Rules, the deductor shall furnish a return in Form GSTR-7 electronically through the common portal either directly or from a Facilitation Centre notified by the Commissioner. Return in Form GSTR-7 is to be furnished within 10 days after the end of the month in which deduction was made.
As per recent 53rd GST Council meeting, government has made compulsory filing of GSTR-7: GSTR-7 must be filed mandatorily even if no TDS is deducted, reported invoice-wise and no late fee will be charged for nil filing.
- Furnishing of certificate to the deductee:
►For the period 01.07.2017 to 31.12.2020:
As per sec 51(3) of the CGST Act, the deductor shall, in the manner prescribed, furnish to the deductee a certificate mentioning therein:
- The contract value,
- Rate of deduction,
- Amount deducted,
- Amount paid to the Government, and such particulars as may be prescribed in this behalf.
- Such particulars as may be prescribed in this behalf.
As per rule 66(3) of the CGST Rules, the certificate shall be made available electronically to the deductee on the common portal in Form GSTR-7A on the basis of the return furnished in Form GSTR-7.
►W.e.f. 01.01.2021:
Sec 51(3) as substituted vide the Finance Act, 2020
As per sec 51(3) of the CGST Act, a certificate of tax deduction at source shall be issued in such form and in such manner as may be prescribed.
- Late fees to be paid in case certificate is not furnished
►W.e.f. 01.01.2021:
Sec 51(4) has been omitted vide the Finance Act, 2020 w.e.f. 01.01.2021
Amendment in sub-sec (3) & omission of sub-sec (4) of sec 51 has been carried out to remove the mandatory requirement of issuance of TDS certificate as auto generated TDS certificate (GSTR-7A) is already made available to deductee and corresponding late fee provision has also been removed.
The deductee shall claim credit in his electronic cash ledger
As per sec 51(5) of the CGST Act, the deductee shall claim credit, in his electronic cash ledger, of the tax deducted and reflected in the return of the deductor filed under sec 39(3) Le. GSTR-7.
Interest to be paid if any deductor fails to pay TDS
As per sec 51(6) of the CGST Act, if any deductor fails to pay to the Government the amount deducted as tax i.e. TDS, he shall be liable to pay interest in accordance with provisions of sec 50(1) [i.e. at the rate of 18% per annum), which shall be calculated from the day succeeding the day on which such tax was due to be paid, in addition to the amount of tax deducted.
Further, as per sec 51(7) of the CGST Act, amount of TDS not paid/short paid by the deductor shall be recovered in the manner specified in sec 73 or sec 74 thereof (i.e. dealing with ‘demands & recovery’ provisions in non-fraud and fraud cases respectively).
Continuing with the Example 1(above), if the TDS is deposited with a delay of 30 days (i.e. 3 days in addition to last date of depositing TDS), interest will be INR 75 (i.e. 5,100 x 18% x 30/365 days)
Refund arising on account of excess or erroneous deduction
As per sec 51(8) of the CGST Act, refund to the deductor or the deductee, as the case may be arising on account of excess or erroneous deduction shall be dealt with in accordance with provisions of sec 54 thereof
Further, it is provided that no refund to the deductor shall be granted, if the amount deducted has been credited to the electronic cash ledger of the deductee.
►Judicial outlook:
Refund can be taken of accumulated amount in electronic cash register due to credit of TDS deduction Petitioner had never claimed refund of TDS rather asking for the balance remaining in electronic cash ledger which had arisen, inter alia due to credit taken for TDS and Accumulated on account of its non-utilization. Since there are no dues of tax, interest, penalty, etc., pending against petitioner, refund of balance lying in electronic cash register cannot be denied – Kerala HC in Royale Edible Company v. State Tax Officer, SGST Dept. thrissur [2021 (50) G.S.T. 406 (ker.)]
It is to be noted that the proviso to sec 54(1) of the CGST Act has been amended vide sec 113 of the Finance Act, 2022 w.e.f. 01.10.2022, to provide that form may be prescribed for claiming refund of any balance lying in the electronic cash ledger.
Further, rule 89 of the CGST Rules is amended vide notification no. 19/2022-Central Tax dated 28.09.2022 w.e.f. 01.10.2022, to provide that Form RFD-01 is to be filed for claiming refund of any balance in the electronic cash ledger.
Mandatory registration for TDS deductor
A person who is liable to deduct TDS has to compulsorily register and there is no threshold limit for them as per sec 24(vi). The registration for TDS under GST can be obtained even without PAN but by using the existing Tax Deduction and Collection Account Number (TAN) issued under the Income Tax Act, 1961
- Late fee, interest and penalty:
- The provision of late Fees in respect of TDS in the GST is a two- layered provision.
- If the deductor fails to furnish the return in Form GSTR-7 (under section 39(3)) by the due date (i.e. within 10 days of the month succeeding the month in which deduction was made) he shall pay a late fee of Rs. 100/- per day under CGST Act & SGST/UTGST Act separately during which such failure continues subject to a maximum amount of Rs. 5000/- each under CGST Act SGST/UTGST Act.
- For the month of June 2021 and onwards, late fee payable for delayed filing of Form GSTR-7 is INR 50 (CGST+SGST) per day and maximum late fee INR 2,000 (CGST+SGST).
- If any deductor fails to furnish the certificate of TDS deduction to the deducted [i.e. the supplier] within 5 days of crediting the amount so deducted to Government (i.e. furnishing return in Form GSTR-7), the deductor shall late fee of Rs. 100/- per day under CGST Act & SGST/UTGST Act separately from the day after the expiry of five day period until the failure is rectified subject to a maximum amount of Rs. 5000/- each under CGSTA SGST/UTGST Act.
