Tax deduction at source

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Tax deduction at source 2017-04-13T23:26:04+00:00

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  • Ashish BadalaCA Ashish Badala
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    (1) Notwithstanding anything to the contrary contained in this Act, the Government may mandate,–
    (a) a department or establishment of the Central Government 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 Government on the recommendations   of the Council, (hereafter in this section referred to as “the deductor”), to deduct tax at the rate of one per cent. from the payment made or credited to the supplier (hereafter in this section referred to as “the deductee”) of taxable goods or services or both, where the total value of such supply, under a contract, exceeds two lakh and fifty thousand rupees:
    Provided that 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.
    Explanation.–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.
    (2) The amount deducted as tax under this section shall be paid to the Government by the deductor within ten days after the end of the month in which such deduction is made, in such manner as may be prescribed.
    (3) The deductor shall furnish to the deductee a certificate mentioning therein the contract value, rate of deduction, amount deducted, amount paid to the Government and such other particulars in such manner as may be prescribed.
    (4) If any deductor fails to furnish to the deductee the certificate, after deducting the tax at source, within five days of crediting the amount so deducted to the Government, the deductor shall pay, by way of a late fee, a sum of one hundred rupees per day from the day after the expiry of such five days period until the failure is rectified, subject to a maximum amount of five thousand rupees.
    (5) The deductee shall claim credit, in his electronic cash ledger, of the tax deducted and reflected in the return of the deductor furnished under sub-section (3) of section 39, in such manner as may be prescribed.
    (6) If any deductor fails to pay to the Government the amount deducted as tax under sub-section (1), he shall pay interest in accordance with the provisions of sub-section (1) of section 50, in addition to the amount of tax deducted.
    (7) The determination of the amount in default under this section shall be made in the manner specified in section 73 or section 74.
    (8) The refund to the deductor or the deductee arising on account of excess or erroneous deduction shall be dealt with in accordance with the provisions of section 54:
    Provided that no refund to the deductor shall be granted, if the amount deducted has been credited to the electronic cash ledger of the deductee.

    Priya MadrechaPriya Madrecha
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    51.1    Introduction
    This Section provides for deduction of tax at source in certain circumstances.
    The Section specifically lists out the deductors who are mandated by the Central Government to deduct tax at source, the rate of tax deduction and the procedure for remittance of the tax deducted. The amount of tax deducted is reflected in the Electronic Cash Ledger of the deductee.
    Provisions which are common under CGST (,UTGST) and SGST Act have been analyzed herein.
    51.2    Analysis
    CGST Act vide Section 2 (55) defines the term Government to mean the Central Government. SGST Act vide Section 2 (55) defines the term Government to mean the State Government. Section 51 (1), ibid refers to TDS related mandating by ‘Government’ (Central/State
    Government). Such mandating shall be for the following persons –
    Department or Establishment of Central Government
    Local Authority.
    Government Agencies.
    Persons or category of persons notified by the Central Government on recommendation of the Council.
    1.    The above ‘persons’ are referred to as deductors.
    2.    The deductors have to deduct tax at the rate of 1% from the payment made or credited to the supplier of taxable goods and / or services, notified by the Central Government or State Government on the recommendations of the Council. Deduction is required where the total value of supply under ‘a contract’ exceeds INR 2.5 lakhs. Value of supply shall exclude the tax indicated in the invoice. 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
    3.    The amount deducted shall be paid to the Central Government within ten days after the end of the month in which such deduction is made.
    Draft Rules relating to Payment of Taxes read (vide Rule 4) that payment shall be made by debiting the electronic cash ledger (and crediting the electronic tax liability register).
    4.    The deductor shall furnish a TDS certificate in Form GSTR-7A to the deductee mentioning in it the following:
    (a)    contract value
    (b)    rate of deduction
    (c)    Amount deducted
    (d)    Amount paid to the appropriate Government
    (e)    Any other particulars as may be prescribed
    5.    This certificate has to be furnished within five days of remittance as mentioned above.
    6.    Certificate not furnished by the deductor:- If the deductor does not furnish the certificate of deduction-cum- remittance within five days of the remittance, the deductor has to pay a late fee of INR 100 per day from the 6th day until the day he furnishes the certificate. The maximum late fee is prescribed as INR 5000.
    7.    Non-remittance by the deductor: If the deductor does not remit the amount deducted as TDS, he is liable to pay penal interest under Section 50 in addition to the amount of tax deducted.
    8.    The amount of tax deducted reflected in Electronic Cash Ledger of deductee in the return in Form GSTR-7 filed by deductor shall be claimed as credit.
    This provision enables the Government to cross-check whether the amount deducted by the deductor is correct and that there is no mis-match between the amount reflected in the Electronic Cash Ledger as reflected in the return filed by deductor. One may draw easy analogy from existing practice in income tax related E TDS returns filed by deductor and 26AS statement available for viewing the TDS remitted in respect of his transactions by deductee.
    9.    Refund on excess collection: The deductor or the deductee can claim refund of excess deduction or erroneous deduction. The provisions of section 54 relating to refunds would apply in such cases. However, if the amount deducted has been credited to the Electronic Cash Ledger of the deductee, the deductor cannot claim refund (only deductee can claim).
    10.    As mentioned above, UTGST Act 2017, subject to its own provisions, adopts the provisions in CGST Act in respect of Tax Deduction at Source mutatis mutandis (Ref: Sec 21 of UTGST Act).
    51.3    Comparative review
    Provisions for deduction of tax at source exist in the VAT laws. There are no TDS provisions in central excise or service tax laws today, though there is a concept of reverse charge. Under most State VAT laws, TDS provisions are applicable on payments made to works contractors. Some States have provisions for TDS on ‘transfer of right to use goods’  Comparative table between State VAT Law and CGST Act:
    TDS Provisions under
    S.No.     State VAT Law     CGST Act
    1.     Applicable     only     to     works contractors.     Applicable to suppliers notified by the Central Government on recommendations of council.
    2.     Two different standard rates     One standard rate viz. 1%
    3.     Deductor- every works contractee or awarder of
    contract      (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.
    4.     Two certificates have to be furnished by the Deductor.
    1.    Certificate of deduction
    2.    Certificate of remittance.     One single certificate of deduction –cumremittance to be furnished by the Deductor within five days of remittance.

    5.     If certificate of deduction alone is furnished by the Deductor, burden on the works contractor to prove deduction of tax at source.     No such burden cast on the Deductee. More onus is on the Deductor.
    6.     Refund provisions and Credit provisions not clear.     Refund provisions clear. Credit can also be claimed from the amount reflected in the Electronic Cash Ledger.
    7.     TDS would apply on payments towards transfer of property in goods in the State. Inter-state supplies are generally not subject to TDS.     TDS would apply on the payment made or credited to the supplier. No TDS on interstate supplies.
    51.4    FAQ
    Q1.     Who are the ‘persons’ who can deduct tax at source under Section 51 of CGST Act?
    Ans. The following persons are to deduct tax as per the provisions of Section 51 of the CGST Act:
    (a)    A department or establishment of the Central or State Government,
    (b)    Local authority,
    (c)    Governmental agencies,
    (d)    Such persons or category of persons as may be notified, by the Central or a State Government on the recommendations of the Council.
    Q.2 Under what circumstances can the Deductors mentioned in Section 51 deduct tax at source?
    Ans. The Deductors u/s 51 are required to deduct tax from the payment made or credited to the supplier of taxable goods and/ or services, notified by the Central Government on the recommendations of the Council, where the total value of such supply, under a contract, exceeds rupees 2.50 lakh, exclusive of the tax as per the invoice.
    Q3.     What is the rate of tax deduction at source?
    Ans. The prescribed rate of tax to be deducted at source is a 1% from the payment made or credited to the supplier of taxable goods and / or services.
    Q4. What is the time limit for remittance of the deducted tax by the Deductor into the credit of the Government?
    Ans. The amount deducted shall be paid to the credit of the Government within 10 days from the end of the month in which such deduction is made.
    Q5. What is the nature of certificate to be furnished by the Deductor to the Deductee and what is the time limit?
    Ans. The Deductor shall furnish a certificate in in Form GSTR-7A mentioning therein the contract value, rate of deduction, amount deducted, amount paid to the appropriate Government and such particulars as may be prescribed in this behalf, to the Deductee. This certificate is to be furnished within five days of crediting the amount so deducted to the appropriate Government, failing which, the Deductor would be liable to pay late fee being rupees one hundred per day during which the failure continues but subject to Maximum of rupees 5000.
    Q6.     Can the Deductee claim credit of the remittance of TDS amount by the Deductor?
    Ans. Yes, the Deductee can claim credit of the tax deducted, in his electronic cash ledger. This deduction would also be reflected in the return of the Deductor filed under subsection (3) of Section 39, in the manner prescribed.
    Q7.     Can tax, once deducted, be claimed as a refund? Who can claim refund?
    Ans. Yes, it is possible to claim refund arising on account of excess or erroneous deduction, and this would be governed by the provisions of Section 54. Fine text of refund rules may please be referred.
    Such refund may be claimed either by the Deductor or the Deductee, but not both. Further, no refund would be available to the Deductor once the amount deducted has been credited to the electronic cash ledger of the Deductee.
    51.5  MCQ
    Q1.     The deduction of tax by the Deductor under Section 51 of CGST Act is at the rate of:
    (a)    2%
    (b)    3%
    (c)    1%
    (d)    None of the above.
    Ans. (c) 1%
    Q2. The amount of tax deducted by the Deductor has to be paid to the credit of the appropriate Government within ………… days after the end of the month in which such deduction is made:
    (a)    20 days
    (b)    10 days
    (c)    15 days
    (d)    5 days
    Ans. (b) 10 days
    Q3. The time limit for furnishing the deduction –cum- remittance certificate by the Deductor to the Deductee is:
    (a)    10 days
    (b)    20 days
    (c)    5 days
    (d)    None of the above.
    Ans. (c) 5 days
    Q4.     The Deductee can claim credit of the remittance made by the Deductor in his,
    (a)    Electronic Credit Ledger
    (b)    Tax liability Ledger
    (c)    Electronic Cash Ledger (d)     None of the above.
    Ans. (c) Electronic Cash Ledger
    Q5. If excess or erroneous deduction has been made by the Deductor and this amount is credited to Electronic Cash Ledger of the Deductee, refund can be claimed by,
    (a)    Deductor
    (b)    Deductee
    (c)    Both Deductor and Deductee
    (d)    None of the above
    Ans. (d) Deductee (Subject to fine text of related Rules)
    Q6.     Tax deduction shall be made if –
    (a)    A contract is for an amount exceeds Rs 25 lakh
    (b)    A contractor supplies goods or services or both exceeding Rs 2.5 lakh in a year
    (c)    A contractee receives goods or services or both exceeding Rs 2.5 lakh in a year from various contractors
    (d)    None of the above
    Ans. (b) A contractor supplies goods or services or both exceeding Rs 2.5 lakh in a year

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