Demystifying Tax Deduction at Source under GST Act

In the current tax regime under VAT, we have Tax Deducted at Source, and the same is being continued under GST also. Section 51 of the Central Goods and Service Tax Act, 2017 talks about the provisions related Tax Deduction at Source. TDS is applicable to works contract also related to immovable properties in GST.

TDS is applicable on works contract also and the definition of works contract is defined in subsection 119 of section 2 of the CGST Act 2017.

works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract;

The tax has to be deducted by category of persons as given in the sub-section 1 of section 51 of the CGST Act 2017.  The category of persons are

(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 Central or a State Government on the recommendations of the Council,

Point “d” is an open clause and government on recommendations of the GST Council will notify the class of persons who are required to deduct TDS under GST from time to time whenever it finds that there is a necessity to plug the revenue leakage in the system.

The tax has to be deducted only in case of contracts where the contract value exceeds Rs 2.5 Lacs by the taxpayer who has issued the contract.

TDS should not be deducted 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.

For deriving the value of supply for determining the TDS, is the value of supply excluding the taxes paid under GST (Central Tax, State / UT Tax and Compensation Cess).

The tax so deducted has to be deposited by the deductor by 10th of next month by filing of GSTR – 7

The deductor has to issue a certificate to the deductee, the contractor from whom the tax is deducted with the details like the amount of contract, the rate of tax deducted, amount of tax deducted and amount of tax deposited by the deductor in GSTR – 7A.  The deductor has to issue a certificate within 5 days from the date on which the amount is credited, a late fee of Rs 100 will be levied per day for delay in issue of the certificate. The amount of late fee will not exceed Rs 5000.

The deductee can take the credit of the tax based on GSTR – 2 filed by the Deductor under Section 39, sub-section 3 of CGST Act 2017. The amount will be credited to the electronic cash ledger of the deductee, and he can utilize the same for payment of GST taxes.

In case if the deductor fails to deposit the tax to the respective government, he is liable to pay interest on the defaulted amount as per provisions of Section 50 of CGST Act 2017.

The deductor can claim for refund as per Section 54 of CGST Act 2017 provided that the amount is not credited to the electronic cash ledger of the deductee.

From the provision of this section, it is clear that the government does not want to lose any tax revenue from the small contractors also. One silver lining is that unlike in tax collected at source there is no matching of records to avail the credit. If the contractor wants to avail in the credit, then he has to be registered with GST. In a way, the government is ensuring that there is no revenue leakage from any transactions at any given point of time.

The tax rates with respect to works contract have been reduced from 18% to 12% wide Notification No 20 CGST (Rates) 2017 with respect to composite contracts undertaken for the Government, a local authority or a Governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration. These rates are in addition to the TDS rates. In the erstwhile regime, the contractors were billing under the composite scheme where they were not taking input tax credit, and the excise taxes were added to the cost of the project along with the VAT and Service Tax. But now going forward in GST, as input tax credit is available for all the inputs if used for the furtherance of the business, this means that pricing of the existing contracts has to be re worked to take the benefit of the ITC and it is required as part of the Anti-profiteering provisions of the CGST Act. It will be very tough to say on the face of it that the cost for all the contract will be coming down, it has to evaluated on case to case basis and if there is no remarkable reduction or increase in costs due to lower tax rates on the input supplies. This is most likely to be seen in the case of construction of roads as the major component is gravel which is taxed at 5%, bitumen @ 9%, labor if on pay roll the GST is not applicable as it is part of the wages. Each and every contract has to be evaluated, and price revision has to be carried out accordingly. GST is exempted for some contracts as given in Notification No 12 CGST (Rates), 2017. The prices for contracts falling under such contracts also have to be renegotiated as ITC is not available on inputs.

The rollout date for the TDS in GST will be notified by the government separately, and before that, all the deductors have to obtain new GST registration number for TDS separately. The process of registration for TDS will commence from 18th of September 2017 based on the press release issued after the 21st GST Council Meeting held on 9th September 2017 at Hyderabad.

Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

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Are we ready for the game ?

GST is rolled out from 1st of July 2017 and the trade and industry is able to adapt to the same with some teething troubles. Though all the issues are not resolved some of them are still and it takes some time to get resolved. One month has passed after the rollout of GST and now it is the time for filing of returns. The same is updated through a press release by CBEC on 18th June 2017 – http://www.cbec.gov.in/resources//htdocs-cbec/press-release/press-note-on-return-filing.pdf

As there is a delay in filing of the returns, a new form is known as GSTR – 3B has been introduced and it has to be filed by 20th of Aug 2017. The format is released by the Government. It is basically a summary of the return for the month of July 2017 for determining the net tax liability to be paid. This statement looks simple but the challenge is on a careful review of the format it is clear that there is no provision for the opening balance of the input tax credit as of 30th June 2017. The reason is the GST Tran-1 form has to be filed within 90 days from the appointed date i.e 1st of July 2017. As a result of the closing balance of the Input Tax Credit will not be available for the taxpayers to use the same for payment of taxes for the month of July 2017.

This will have a huge impact on the cash flows as the tax payers have to pay in cash without using the available input tax credit and it is going to impact the MSME sector a lot especially for taxpayers who were not eligible to take registration under Central Excise in the erstwhile regime now they have to pay CGST.

The portal for the GST i.e GST.gov.in is not having the option of filing of the GSTR – 3B as on date, that means the taxpayers have to wait for some more time for filing of the return. This time lag should be utilized by the taxpayers for renegotiating with their customer to receive the payments or at least for the tax amount. Alternatively, they have to look out for additional cash flow either through additional funding or increase their CC limits or another means.  The same is likely to continue for the next month also.

Managing of the working capital is one area and another is ensuring that the data required for the return filing is also in place. GSTR – 3B is an interim return and the actual returns for GST have to be filed by 10th of September i.e, GSTR – 1 by 5th September 2017 and GSTR – 2 by 10th September 2017.

 

GST Acts

President signs GST Acts and you can download the same from here

Central Goods and Service Tax Act 2017

Integrated Goods and Service Tax Act 2017

Union Territory Goods and Services Tax Act, 2017

Goods and Services Tax (Compensation to States) Act, 2017

In case of any queries on the GST Acts, you can drop a mail to askus@india-gst.in. You will get replies within 24 to 48 hours

GST Tip – 114

Input Service Distributor has to file a return known as GSTR – 6 every month within 13 days from the end of the month. It will contain all the taxes invoices issued during the month along with the input credit received details during the month.

GST Tip 109

GSTR – 3 is a monthly return to be filed on basis of the finalized data of outward supplies i.e GSTR – 1 and inward supplies i.e GSTR – 2 along with the amount of tax, interest, late fees and penalty paid for the month.

Prototypes – Retruns & Payments

The work at the GSTIN is going at the speed of light for making the reporting seamless and online under GST. A few days back the GSTIN has released the list of selected GSP’s (GST Suvidha Provider) and now they have released the screenshots of the screens under GST for Returns and Payments. The basic reason for them to release these screens is to give a basic idea of the screens under GST and how simple and ease it will be for the tax payers.

The mock-up screens can be viewed from here