Tax Deducted at Source under GST
Tax Deduction at Source (TDS) is a system which was initially introduced by the Income Tax Department. It is one of the modes/methods to collect tax, under which, certain percentage of amount is deducted by a recipient at the time of making payment to the supplier. It is similar to “pay as you earn” scheme also known as Withholding Tax, in many other countries.
The provisions of TDS were introduced in GST law in order to regulate unorganized sectors in the market. In the following article we are discussing the criteria and procedure under GST
The following persons are liable to deduct TDS under GST..
(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 Central or a State Government on the recommendations of the Council.
Rate of TDS
TDS is to be deducted at the rate of 2% (CGST 1% + SGST 1%) for Intra-State Supplies or 2% ( IGST ) on Inter State Supplies on payments made to the supplier of taxable goods and/or services. The deductor is required to deduct tax only where the total value of supply under a contract exceeds two lakh fifty thousand rupees.
However, 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. In such cases , transfer of TDS (Central tax + State tax of State B) to the cash ledger of the supplier (Central tax + State tax of State A) would be difficult. So ,when both the supplier as well as the place of supply are different from that of the recipient, no tax deduction at source would be made.
Vide Notification No. 33/2017 – Central Tax, 15th September 2017 , provisions of Section 51 (deducting TDS under GST) have become applicable from 18th September,2017. Hence the entities liable to deduct TDS would be required to follow compliances for the same. However it was clarified vide notification that the above entities liable to deduct tax from the payment made or credited to the supplier of taxable goods or services or both , shall deduct such tax with effect from a date to be notified subsequently, on the recommendations of the Council, by the Central Government.
Value of supply on which TDS shall be deducted:
For purpose of deduction of TDS, the value of supply is to be taken as the amount excluding the tax indicated in the invoice. This means TDS shall not be deducted on the CGST, SGST or IGST component of invoice.
To whom would you pay the TDS?
TDS shall be paid within 10 days from the end of the month in which tax is deducted. The payment shall be made to the appropriate government which means:
- The Central Government in case of the IGST and the CGST
- The State government in case of the SGST.
Procedure for getting registered as Deductor
The registration application for Tax Deductor can be filed electronically by submitting a duly signed application in Form GST REG-07. In the place of PAN, such persons will indicate their TAN in the registration application. The deductor has a privilege of obtaining registration under GST without requiring PAN. He can obtain registration using his Tax Deduction and Collection Account Number (TAN) issued under the Income Tax Act, 1961.
The documents required while getting registered as Tax Deductor include:
- Applicant has valid TAN.
- Applicant must have a valid mobile numberand email id
- Applicant must have the prescribed documents and information on all mandatory fields as required for registration.
- There must be a place of business of the applicant.
- There must be a authorized signatory of the applicant with the valid details.
The registration application of the applicant will then be processed and approved by the relevant Tax Officer after which he will be issued the registration certificate containing the number
TDS Certificate and Fines Involved:
- A TDS certificate is required to be issued by deductor (the person who is deducting tax) in Form GSTR-7A to the deductee (the supplier from whose payment TDS is deducted).
- This has to be produced within 5 days of crediting the amount to the Government, failing which the deductor would be liable to pay a late fee of Rs. 100/- per day from the expiry of the 5th day till the certificate is issued.
- This late fee would not be more than Rs. 5000/-. For the purpose of deduction of tax specified above, the value of supply shall be taken as the amount excluding the Central tax, State tax, Union territory tax, Integrated tax and cess indicated in the invoice.
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