TDS Under GST
Who is required to deduct TDS on GST w.e.f. 1.10.18
The following class of persons are required to deduct TDS on GST from the payment made or credited to the supplier if the Contract Value is more than Rs. 2.5 Lakhs:-
- A Department or Establishment of the Central Govt or State Govt
- Local Authority
- Govt Agencies
- Such persons or category of persons notified by the Govt.
The following category of persons have been notified by the Govt 13.09.2018 on which the provisions of TDS on GST would be applicable:-
- An authority or board or any other body with 51% or more participation by way of equity or control
- Set up by an Act of Parliament or a State Legislature; or
- Established by any Govt.,
- Society established by the Central Govt. or State Govt. or a Local Authority under the Society Regulations Act, 1860
- Public Sector Undertakings
Introduction of TDS under GST the main objective
Initially this concept introduced in the Income Tax Act. The purpose of introduction of TDS on GST is only to enable the govt to have a trail of transactions and to monitor and verify the compliance.
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. As same in the Income Tax resigm, the person deducting the TDS is required to deposit the TDS with the Govt and issue Form 16 and Form 16A, similarly under GST Act as well, the person deducting the TDS would be required to deposit and issue Form GSTR 7A to the person whose TDS has been deducted.
Cases where TDS on GST is not required to be deducted
TDS on GST is only required to be deducted where the payment made or credited to the supplier is done by the above mentioned category of persons.
There are certain exceptions to this and in the following cases, TDS would not be deducted even if the payment is made by the above mentioned persons:-
A. Contract Value does not exceed Rs. 2.5 Lakhs
If the Contract Value does not exceed Rs. 2.5 Lakhs, No TDS is required to be deducted.
Therefore, while determining the applicability of TDS on GST – it is the individual contract value which would be considered irrespective of the total no. of contracts.
B. Location of Recipient is different from Location of Supplier and Place of Supply
Quickly Check Applicability of TDS under GST
Proviso to section 51 of CGST Act’ 17
|Case||Location of Supplier||Place of Supply||LocationofRecipient||TDS||GST Charge|
|1||Delhi||Delhi||Delhi||Applicable||Delhi CGST, Delhi SGST|
|3||Delhi||Delhi||Haryana||Not Applicable||Delhi CGST, Delhi SGST|
TDS on GST would not be applicable if the Location of Recipient is different from the Location of Supplier and the Place of Supply.
This can be explained with the help of an example.
For eg: Haryana Govt. enters into a contract worth Rs. 1 Crore with Delhi Contractor to built a building in Delhi. In this case, Delhi contractor will levy Delhi SGST and CGST.
- Place of Supply – Delhi
- ocation of Supplier – Delhi
- ocation of Recipient – Haryana
The provisions of TDS would not apply in this case irrespective of the contract value as the Place of Supply and Location of Supplier is different from the Location of Recipient.
Eg 2: A Contractor registered in Delhi Built Building in Mohali, Punjab for contact awarded by Haryana Govt worth Rs. 1 Crore. In this case, IGST would be levied.
- Place of Supply – Punjab
- ocation of Supplier – Delhi
- ocation of Recipient – Haryana
The provisions of TDS will apply in this case.
Therefore, while determining the applicability of TDS on GST, it is very important to determine the place of supply.
Rate of TDS on SGST 1%, CGST 1% or 2% IGST
1% TDS is required to be deducted under both the CGST and the SGST Act and therefore the total TDS to be deducted is 2%. In case of an inter- state transaction, IGST would be levied and 2% TDS would be levied in this case as well.
No TDS on GST tax component!
Suppose supply is for Rs.118,000 tds is liable to be deducted on Rs.100,000/- only
Deposit of GST TDS and TDS Certificate
The amount of TDS deducted should be deposited with the govt by the deductor by the 10 th of the next month in Form GSTR 7 through the online portal gst.gov.in. The deductor would be liable to pay interest if the tax deducted is not deposited within the prescribed time limit as mentioned above.
A TDS Certificate would also be required to be issued by the deductor (the person who is deducting the tax i.e. the recipient) in GSTR 7A to the deductee (the supplier whose payment is being deducted) within 5 days of depositing the TDS with the Govt.
If the TDS Certificate is not issued within 5 days from the date of deposit with the Govt., the deductor would be liable to pay late fees of Rs. 100/ day. However, the late fees levied should not be more than Rs. 5,000.
The TDS so deducted would also be visible to the suppliers in Form GSTR 2A and the supplier can include and avail the same in GSTR 2. The supplier can take this amount as credit in his electronic cash register and use the same for payment of tax or any other liability.
Impact of TDS on Government civil contractors
The Central, States government, PSU, Local authorities gives out huges civil contracts every year throughout the country. The contract for constructing/repairing of infrastructure, metro, railways, national highways average high values transactions. These contracts are acquired by big construction companies and then sub-contracted to smaller firms and then again further sub-contracted to another small firm. This loop will face problems due to GST and in particular due to the TDS liability.
The government would need to deduct TDS from the contractor which would ensure tax compliance by the contractors and all the other sub- contractors. Currently, many small civil/labour contractors do not fulfill tax compliance. Under GST it will be imperative for them to get registered and fulfill tax compliance. Ultimately cash flow impacted in the hands of contractors/ suppliers since 2% TDS deducted under GST in addition to TDS deducted under Income tax, although the contractor can set off GST- TDS against it's GST tax liability! Government GST revenues obviously goes up.