GSTR – 2A is an auto-populated draft inward supplies return based on the supplier of goods or services filed through GSTR – 1 (outward supplies), GSTR – 5 ( filed by non-resident taxable person), GSTR – 6 (filed by input service distributor), GSTR – 6 (filed by Tax deductor at source) & GSTR – 7 (filed by a person collecting tax at source).
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.
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GST Tip – 115
Registered Tax Payers liable to deduct Tax Deduction at Source (TDS) under GST, will be required to file a monthly return for the tax deducted under GST in GSTR – 7. A certificate of tax deducted is issued by the deductor to the deductee through GSTR – 7A, which can be downloaded from common portal.
GST Tip – 112
GSTR – 4A is a return in which all the inward supplies of the Composition Tax Payer are auto-populated from the outward supplies of the tax payers who supplied goods and services to the Composition Tax Payer. The data is auto populated from the supplier GSTR – 1 GSTR – 7. Surprisingly the data does not come from GSTR – 6(Input Service Distributor’s return) & GSTR – 8 (Return filed by e-commerce operator). Need more clarity on this.
GST Tip – 108
GSTR – 2A data will be auto-populated based on the data filed in GSTR – 1(outward supplies return filed by the supplier), GSTR – 6 (Quarterly return filed by the Input Service Distributor), GSTR – 7 (Monthly return filed by the Tax Deductor) & GSTR – 8 ( Monthly return filed by the tax collector at source (e-commerce operator) in various tables.
GST Tip – 99
Tax Deducted at Source under GST will be shown in Table 10 of GSTR – 2, basis of the return filed by the deductor in the return GSTR – 7. The amount of TDS deducted under TDS_CGST, TDS_SGST and TDS_IGST will be eligible for ITC and can be utilized for payment of output tax liability.
GST Tip – 73
Every Tax Deductor under GST for TDS_GST has to file a monthly return called GSTR – 7 and basis of this return, part C for GSTR – 2A will be auto-populated for the deductee.
Demystifying Tax Deduction at Source under the Model GST Law
In the current tax regime under VAT we have Tax Deducted at Source, and the same is being continued under GST also. Section 37 of the Model GST Law talks about the Tax Deduction at Source. From the Model GST Law, it is clear that it is not applicable for all transaction and to be recovered by all tax payers.
The tax has to be deducted by a specific set of persons as given in the sub-section 1 of section 37 of the Model GST Law. The list of persons who have to deduct tax will be decided by the State or the Central Government. The list of person as per Model GST Law
(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,
Now we need to see who all will be included in the last point. It looks like the government wants to deduct tax on contracts gives for execution of roads, dams, power plants etc. This is to ensure that the contractor pays tax on the income and does not escape from the tax net, thereby minimizing revenue leakage.
The tax has to be deducted only in case if the supply of goods or service exceeds Rs 10 Lacs on the list of goods / services notified by the GST Council. The tax base for deduction of tax for TDS under GST is excluding the taxes mentioned on the invoice, this is something different to the valuation for determination of taxes under Section 15. The rate of tax to be deducted is 1%. This is surprising to note that the tax rate has been prescribed in the Act. We need to wait for the final GST Bill and see if the same will be included in the Act or will be announced through notification. If the rate is mentioned in the Act, the Act has to be amended every time government wants to change the tax rate.
The tax so deducted has to be deposited by the deductor by 10th of next month based on the format and other information to be reported. This will be made available only once the GST Council if formed.
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, the amount of tax deducted and the amount of tax deposited by the deductor.
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 a 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 27, sub-section 5 of the Model GST Law. 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 36 of the Model GST Law.
The deductor can claim for refund as per Section 38 of the Model GST Law provided that the amount is not credited to the electronic cash ledger of the deductee.
The person who has to deduct tax has to obtain registration number by filing of Form GST REG – 07.
GSTR – 7 has to be filed by the deductor on monthly basis using the services of GSP or directly on GSTN servers.
GSTR – 7A is the deduction certificate to be issued on monthly basis to 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.
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