GST-Tax-Deduction

TDS under GST – Rules and Regulations

TDS under GST – Rules and Regulations

As per Section 194C of the Income Tax Act, TDS under GST refers to the obligation of the contractor or owner of the project to deduct tax at source. TDS also refers to an indirect tax collection.  The framework of TDS deduction applies to the recipient by collecting tax at the time of making payment to the supplier. Tax deduction at source helps the government to consolidate the number of persons responsible for remitting tax and also increases the tax collection. In this article, let us look at the Tax Deduction at Source under GST.

Members Required for Tax Deduction at Source

The following persons may be required to deduct TDS:

  • Department or establishment of the Central or State Government,
  • A local authority,
  • Governmental agencies as well as
  • Such persons or categories of persons may be notified, by the Central or a State Government on the recommendations of the GST Council,
  • Established by an Act by the Parliament or the State Legislature,
  • Supported by any government for up to 51% through equity control to perform any functions
  • Any society established by the Central Government, the State Government or Local Authority as per Societies Registration Act
  • Public sector undertakings

Requirement to Deduct TDS under GST

As per GST Model Law, a Tax Deductor should deduct tax at the rate of 1% from the payment made or credited to the supplier of taxable goods and/or services. The tax rate was notified by the Central or State Government on the recommendations of the Council, where the total value of such supply, under a contract, exceeds Rs.5 lakh.

The deduction of tax shall also apply to the payment made or credited to the supplier. In addition, it also applies to the supply of goods and services made by the supplier.  The tax applies for both when the total value of supply exceeds Rs.2,50,000. However, the tax for the GST shall exclude Central tax, State tax, UT tax, Integrated tax as well as Cess.

While deducting tax as per GST regulations, the deductor shall the following in a certificate to the deductee detailing:

  • Contract value,
  • Rate of deduction,
  • Amount deducted,
  • Amount paid to the appropriate Government and
  • Other particulars as prescribed by the Government, from time to time.

Conditions for Deducting Tax

The following conditions shall apply for deducting tax at source:

  • If the total value of the taxable supply records greater than Rs.2,50,000. The value shall apply only on a single contract. However, the tax value shall exclude taxes and cess under GST.
  • Provisions for deductions on contracts made for both taxable and exempted supply shall apply to the total value of goods and supplies. The deduction shall apply when the value records greater than Rs.2,50,000. This shall also exclude taxes and cess under GST.
  • When the supplier’s location and the place of supply of goods occur in the same state or UT. Under these circumstances, if the trade occurs between different states (inter-state supply) and  TDS is applied at 1% under the CGST Act, SGST and UTGST Act if the deductor has registered in the State or UT without legislature.
  • If the location of the Supplier belongs to State A and place of supply belongs to UT or State without legislature-B. Under these circumstances, if the trade occurs between different states (inter-state supply) and  TDS is applied at 2% under the IGST Act if the deductor has registered in the State or UT without legislature-B.
  • When the location of the Supplier situated at State A and place of supply belongs to State or UT without legislature B. Under these circumstances, if the trade occurs between different states (inter-state supply) and  TDS is applied at 2% under the IGST Act if the deductor has registered in State A.
  • Upon paying the advance amount on or after 1.10.2018 to the supplier for goods and services.

Conditions when Deducting Tax under GST shall not apply

The following mentions the conditions when deducting tax shall not apply:

  • When the total value of the taxable supply records less than Rs.2,50,000 under a single contract.
  • If the contract value shows greater than Rs.2.5 lakh for taxable and exempted supply, however, the contract states less than Rs.2.5 lakh.
  • Exemption to receipts of goods. The exemption applies to services as per notification No.2/2017, Central Tax Rate released on 28.9.2017.
  • Goods that do not fall under the taxable category. The categories include petrol, diesel, petroleum crude, natural gas. Further, it also includes aviation fuel (ATF) as well as alcohol for human consumption.
  • If the supplier issued an invoice for the sale of goods to deduct tax under VAT before 1.7.2017 but the payment occurred on or after 1.7.2017. The provision shall apply as per Section 142(13).
  • The distribution of products by the supplier performed at a State or UT but the deductor registered with a different state.
  • All transactions or activities performed through Schedule III of the CGST/SGST Act 2017. It shall apply irrespective of the value.
  • Tax to be paid by the deductee on reverse charge.
  • When the payment relates to a tax invoice dated before 1.10.2018.
  • If the payment was made in advance before 1.10.2018 and tax invoice dates on or after 1.10.2018.
  • The payment for the goods and supplies made to an unregistered supplier.
  • The amount relates to the ‘Cess’ module.

Remittance of GST Tax Deducted

The tax deducted under GST should be paid to the account of the appropriate Government by the deductor within ten days after the end of the month in which such deduction is made.

Claiming Credit for GST Tax Remitted

As per the GST Model Law, once a deductor deducts tax, remits the amount with the appropriate Government authority, issues a tax deduction certificate under GST, the deductor could claim credit of the tax deducted and reflected in the return of the deductor.

Penalties for Improper GST Tax Deduction at Source

  • If a deductor fails to furnish to the deductee the tax deduction certificate under GST, after deducting the tax at source, within five days of crediting the amount so deducted to the appropriate Government. Then the deductor shall pay, by way of a late fee, Rs.100 per day. It applies from the day after the expiry of the five day period until the failure is rectified. The maximum penalty payable under this section cannot exceed Rs.5000.
  • If a deductor fails to pay to the account of the appropriate Government the amount deducted as tax, then the deductor would be liable to pay interest in addition to the amount of tax deducted.
  • When the deductor fails to deduct tax as per Section 51, an interest rate of 51% shall apply. The interest rate shall apply from the first date of non-compliance.
  • Upon failure to deposit the deducted amount, the penalty shall apply as per Section 73 or 74.
  • A penalty of Rs.10,000 shall apply if the deductor deducts less amount than the actual amount as prescribed. Further, the penalty shall also calculate the equivalent amount in the case of any changes in the tax amount.

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