Why, When, What, Where & How of TDS Provision under GST

Why, When, What, Where & How of TDS Provision under GST


We all know Tax Deduction at Source (TDS), Tax collection at Source (TCS) provisions under the Income Tax Act. Similar provisions are there in the GST law. However, it is proposed to be implemented w.e.f. 01.10.2018. It is all set to change the working environment. This is an additional compliance over and above the existing regular compliance under the GST Law. Though its implementation is delayed by almost 1 ¼ of a year but its sudden implementation now from 1st October 2018 has still various issues & challenges for the businessmen wo are strongly struggling with the ongoing amendment, changes & compliance burden in the existing structure.

As the name suggests, it requires deduction of tax at source. Tax is  be deducted by certain specified Government bodies/ PSUs, where the total value of supply, under a contract, exceeds Rs. 2,50,000. Let us know about it:

Why & Who:

It is a measure introduced to control the tax evasion & revenue leakage in the best possible measure. It also helps to the Government in keeping a trail over the moments of the goods & services. The obligation is on the buyer or recipient of service.  The recipient (buyer or service recipient) of supply i.e. the TDS Deductor is obligated to deduct GST @ 2% (1% CGST + 1% SGST) from the payment made or credited for taxable goods or services or both. The aim to bring this provision is to keep a watch on tax evasion and leakages to the extent possible.

A New Compliance in the GST – Compulsory registration for deductor:

Under the Income Tax Act, Deductor is duty bound to obtain Tax Deduction Account Number (TAN) and is also required to file quarterly TDS/TCS returns. Further, under the Income Tax Act-1961, an option is there with the deductor to obtain branch wise TAN for compliance at every branch or unit level.

In GST law also, there is a separate compliance burden. Persons who is required to do TDS in the GST law (i.e., buyer or recipient of services) is required to obtain registration (whether or not registered separately).

The unresolved issue is that the law does not clarify whether a person has to obtain multiple numbers if they have multiple place of business in one state? Prima facie, it appears that each branch would require separate number for compliance. Suitable clarification would make the compliance burden easy for the deductor.

Applicability to the supply done prior to 01.10.2018?

The biggest problem with the new law arises during “Transition period”. Same has happened at the time of implementing GST law which has replaced Excise, Sales tax, & multiple indirect taxes. Same is the issue in the implementation of the new TDS provision under the GST law.

Question remains whether TDS provisions applicable for the supplies which is done prior to 01.10.2018 but the payments is done after this date. Legal interpretation leave the matter to different interpretation. Suitable clarification that the TDS is linked to supply and no TDS be done on the supply completed before 01.10.2018 (even if the payment is done after 01.10.2018) would make the transition easy.

What about Exempt Supplies:

Under the Income Tax Law, there are various Circulars which have ensured non-compliance with the TDS provision where the income is otherwise fully exempt. Presently GST law doesn’t have any such circular nor the law provide such immunity.

The legal coining of the provision suggests that TDS is to be deducted from payments made or credited for taxable goods or services or both. Taxable supplies have been defined as “supply of goods or services or both leviable to tax under the Act”.  Broader interpretation of the GST law requires TDS even if exemption notification exists for such supply.

Whether TDS applies to Inter State supplies also or only Intra state supplies are subject to TDS:

The present word in the GST law appears to exclude TDS in case the registration of supplier & the place of supply of the recipient are in different states. However, the provisions do not say that TDS is not applicable for inter-State supplies. Recently,  FAQ released by Karnataka Government clearly conveys that TDS is not to be done on inter-State supplies irrespective of the location of supplier/ place of supply/ location of the recipient of goods/services. Suitable clarification from the Government / GST council will make the implementation of provision easy.

Value subject to TDS:

TDS provision stipulations for tax deduction on the total value of such supply under a contract value of which exceeds 2.5 lakh. An important & critical issue now is whether

  1. the tax is to be deducted for all supplies under one contract, where the contract value exceeds 2.5 lakh”or
  2. The value qua each supply is to be considered irrespective of the contract value.

Again suitable timely clarification will make the life of the businessmen easy

Whether branch or inter-unit transfer to attract TDS:

As we all know, branch or Inter unit transfer are liable for GST. Following same principle, the transactions of branch transfer or inter unit transfer are also in the net of “TDS” in GST.  Resultantly, one branch who is a recipient of goods/services is duty bound to do TDS of the supplier Branch/Head office.