Govt explains TDS Mechanism under GST

TCS - Implement - Taxscan

A concept note has been released by the Central Board of Excise and Customs (CBEC) on the topic TDS Mechanism under the newly implemented Goods and Services Tax (GST) law.

The concept of tax deduction at source was (TDS) 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. It facilitates sharing of responsibility of tax collection between the deductor and the tax administration. It also ensures regular inflow of cash resources to the Government. It acts as a powerful instrument to prevent tax evasion and expands the tax net, as it provides for the creation of an audit trail.

Section 51 of the CGST Act, 2017 prescribes the authority and procedure for TDS under the new tax regime. The Government may order the following persons (the deductor) to deduct tax at source: (a) A department or an 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.

The tax would be deducted @1% of the payment made to the supplier (the deductee) of taxable goods or services or both, where the total value of such supply, under a contract, exceeds two lakh fifty thousand rupees (excluding the amount of Central tax, State tax, Union Territory tax, Integrated tax and cess indicated in the invoice). Thus, individual supplies may be less than Rs. 2,50,000/-, but if contract value is more than Rs. 2,50,000/-, TDS will have to be deducted.

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.

Under the new law, a TDS deductor has to compulsorily register without any threshold limit. 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.

Considering the difficulties of the traders, the The Government had decided to defer the implementation of provisions relating to TDS and TCS.

However, in the last GST Council, it was decided to implement the provisions relating to tax deduction at source (TDS) from 18th September 2017 and the registration for Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) has been reopened.

The amount of tax deducted at source should be deposited to the Government account by the deductor by 10th of the succeeding month. The deductor would be liable to pay interest if the tax deducted is not deposited within the prescribed time limit.

Non-compliance with the TDS provisions would attract interest, late fee etc.

Read the full text of the Concept Note below.

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