TDS on Service Tax

Tax Deducted at Source (TDS) is one of the methods used by the Income Tax Department to accumulate Income Tax from taxpayers. It involves the payer of a sum deducting a specified amount in taxes before making payout to the payee/deductee and afterwards depositing the amount to the govt's credit.

What is TDS?

TDS is a method through which the government assures the collection of taxes consistently. It aids in the prevention of tax leakage and assists the deductee in offsetting it against his overall responsibility.

What is TDS in the context of GST?

TDS is used in the GST system to refer to the process by which the recipient of specified goods or services deducts a portion of the tax from the amount paid to the provider. This sum has been deducted and must be paid to the government.

The legislation establishing the Goods and Services Tax specifies who is required to withhold tax at the origin, overall rate of tax, and the way wherein the tax is also to be paid.

Transactions that require TDS deduction

• Receivers are required to deduct tax at source if the entire price of goods and services received from the supplier under a single deal exceeds Rs 2,50,000.
• Thus, even though the total value of the products or services included by the agreement is below Rs 2,50,000, the tax must be deducted under the GST TDS rules.
• To determine the amount of tax, the whole value of the supply to be received shall be deducted from any CGST/SGST/IGST or cess component.
• TDS should not be collected on the tax component sum, as this would undermine the aim of the GST, which is to prevent the problem of taxation on taxation.

What are the conditions in which no TDS is required under the GST law?

No TDS is required under GST if the source of supply of goods and services, as well as the place of the seller, differs from the province in which the recipient has obtained GST registration. For instance, if the supplier is located in state Haryana and the location of supply is likewise located in Haryana, but the recipient is located in state Delhi, TDS is not relevant in this scenario.

Additionally, the GST Council stated that tax deduction at source (TDS) is not needed in the following situations:

• If payment has been made to an unregistered provider, there is no TDS.
• There would be no TDS on a transaction that comes within Schedule III of the Central Products and Service Tax Act, which defines transactions that cannot be classified as either a sale of goods or a supply of services.
• Whenever a transaction requires the recipient of goods or services to pay the tax via the reverse charge mechanism, the receiver should not deduct tax at the source.
• When the supply contains items that are not subject to GST, such as petrol, diesel, natural gas, aviation turbine fuel, petroleum crude, and alcoholic beverages for human use, no tax deduction at source is possible.
• TDS is not required if the contract sum of the taxable supply does not exceed Rs 2.5 Lakh. If a contract contains both taxable and exempted goods, tax is to be deducted at origin on the number of taxable supplies contained in the contract, but only if the value of such goods exceeds Rs 2.5 Lakh.
• There is no TDS on the receipt of government-exempted goods and services.

Penalty for failure to submit a TDS certificate on deadline

If the person required to deduct TDS doesn't provide the TDS certificate within 5 days after making the tax payments to the government, the entity is required to pay a late charge of Rs 100/- per day. The late charge of Rs 100/- per day must be payable beginning on the fifth day after TDS is submitted to the government and ending on the day the TDS certificate is given. The late charge shall not exceed Rs 5,000/- in total.

1. Interest is charged on late payments and non-payment of taxes due to the government

According to the TDS rules of the GST, if the individual who deducted tax does not pay it to the government within ten days after the end of the month wherein the tax was deducted, he is liable to pay interest at an annual rate of 18% on the amount of tax not paid or late paid.

Additionally, if TDS is not taken when it is needed to be calculated or whether the amount deducted is much less than the amount necessary to be deducted, a minimum fine of Rs 10,000/- may be levied for such failure to deduct or under-deduct TDS.

2. Credit for input tax on TDS amount

The sum of TDS deducted is recorded in the digital ledger of the individual from whom the tax was deducted, i.e., the supplier. This sum of TDS is recorded in the supplier's digital ledger only when the deductor (receiver) files Form GSTR-7. The provider may claim credit for this TDS and apply it toward the payment of further taxes.

3. Refund of incorrectly deducted TDS

If TDS on GST is deducted incorrectly or over the required amount, the provider may seek a refund. However, if this amount is entered into the supplier's digital money ledger, the supplier will be unable to recover it from the deductor.

4. Taxation at the Source (TCS)

It is yet another method of tax collection majorly for e-commerce providers such as Amazon, Flipkart, and Ajio. Under this system, e-commerce providers are required to collect tax at the point of sale (TCS) on the net value of supplies made via their digital platform.

The obligation to collect tax at the origin arises once the e-commerce operator collects payment from suppliers for supply made through the e-commerce operator's digital platform. The term "net value of supply" refers to the entire value of taxable goods and services made less any refunds to suppliers from consumers.

Conclusion

Thus, TDS regulations under GST are a larger tool used by the government to combat tax evasion and improve the Goods and Services Tax system's transparency. Tax deducted at source (TDS) functions in the same way as it does in the income tax system. The ultimate objective of TDS in both the direct and indirect tax systems is to guarantee that taxes are collected by the laws and taxpayers can be easily identified.

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FAQs

Q. As a basic guideline, who is responsible for paying tax to the government under the GST?

Ans. Generally, it is the supplier's responsibility to pay the government GST. But, in some circumstances, such as imports, TDS on GST, TCS, and reverse charge mechanisms, the receiver is required to pay tax to the government.

Q. Are tax and cess included in the value of supply used to calculate TDS?

Ans. No, the value of supply should be taken into account for computing the TDS, excluding any tax or cess component.

Q. Can TDS be deducted at a level other than the government-specified rate?

Ans. No, TDS shall be made only at the rate set by the government, which is currently 2% of the value of taxable supplies.