TDS under GST

 TDS under GST

TDS under GST is applicable since 1st October 2018

Sec 51 of CGST Act deals with TDS on GST

Applicability

If the contract value is more than Rs 2.50 Lakhs, the following class of persons who are registered under GST Law are required to deduct TDS on GST

1. A Department of Establishment of the Central Government or State Government.

2. Local Authority

3. Government Agencies

4. Such persons or Category of persons notified by Government.

The following category of persons have been notified by the Govt on which the provisions of TDS on GST would be applicable.

An authority or board or any other body with 51% or more participation by way of equity or control

1. Set up by an Act of Parliament or a State Legislature; or

2. Established by any Govt., Society established by the Central Govt. or State Govt. or a Local Authority under the Society Regulation Act 1860

Public Sector Undertakings

The above persons “As per provisions of section 24(vi) (Who are required to deduct TDS under Section 51, Shall take registration in the Form GST REG-07

 

Registration

A person who is liable to deduct TDS has to compulsorily register under Section 24(vi) and there is no basic exemption limit. Registration under GST can be obtained without PAN and by using the existing tax deduction and collection account number (TAN) issued by Income Tax Act.

A person liable to deduct tax is required to register as a diductor even if he is registered separately as supplier.

 

Applicability and Rate

 on payment made to supplier of taxable Goods or Services, where the total value of such supply or services under individual contract in excess of Rs 2.50 lakhs.

 

Deposit of TDS on GST

The amount of TDS deducted should be deposited with Government by the deductor by the 10th of next month. In FORM GSTR 7, through the online portal gst.gov.in.

Late filing of GSTR-7 results in a late fee of Rs 100 per day under CGST and Rs 100/- under SGST, hence, a total of Rs 200/- per day is levied. Maximum penalty cap is Rs 5000/= under CGST and Rs 5000/- under SGST.

Apart from Late fee- Interest @ 18% PA, applicable from next day of the due date of filing of return to the day of making actual payment.

Any excess or erroneous amount deductible and paid to the Government shall be dealt for refund under section 54. However, if the deduction amount is already credited to the Electronic Cash Ledger of the Supplier, the same shall not be refunded.

 

TDS Certificate

TDS certificate would also to be issued by the deductor in GSTR 7A to the deductee, within 5 days of depositing the TDS with the Government. Non- Compliance of the above will attract late of Rs 100/- per day subject to maximum of Rs 5000/-

 

Tax deduction is not required in following situations:

a) Total value of taxable supply? Rs. 2.5 Lakh under a contract.

b) Contract value > Rs. 2.5 Lakh for both taxable supply and exempted supply, but the value of taxable supply under the said contract? Rs. 2.5 Lakh.

c) Receipt of services which are exempted. For example, services exempted under notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017 as amended from time to time.

d) Receipt of goods which are exempted. For example, goods exempted under notification No. 2/2017 – Central Tax (Rate) dated 28.06.2017 as amended from time to time.

e) Goods on which GST is not leviable. For example, petrol, diesel, petroleum crude, natural gas, aviation turbine fuel (ATF) and alcohol for human consumption.

f) Where a supplier had issued an invoice for any sale of goods in respect of which tax was required to be deducted at source under the VAT Law before 01.07.2017, but where payment for such sale is made on or after 01.07.2017 [Section 142(13) refers].

g) Where the location of the supplier and place of supply is in a State(s)/UT(s) which is different from the State / UT where the deductor is registered.

h) All activities or transactions specified in Schedule III of the CGST/SGST Acts 2017, irrespective of the value

i) Where the payment relates to a tax invoice that has been issued before 01.10.2018.

j) Where any amount was paid in advance prior to 01.10.2018 and the tax invoice has been issued on or after 01.10.18, to the extent of advance payment made before 01.10.201

k) Where the tax is to be paid on reverse charge by the recipient i.e. the deductee.

l) Where the payment is made to an unregistered supplier.

m) Where the payment relates to “Cess” component.

Taxability of Liquidated Damages under GST

 Taxability of Liquidated Damages under GST

Liquidated damages refer to the pre-determined amount of compensation that a party agrees to pay in the event of a breach of contract or default by one of the parties. Under GST (Goods and Services Tax), liquidated damages may be subject to tax depending on the circumstances of the case.

If liquidated damages are part of the contract price and are paid for the supply of goods or services, they are treated as consideration for the supply and are subject to GST at the same rate as the supply. This means that if the supply is subject to GST, the liquidated damages will also be subject to GST at the same rate.

However, if the liquidated damages are paid for reasons other than the supply of goods or services, such as compensation for breach of contract or default, they may not be subject to GST. In such cases, the payment of liquidated damages will be treated as a penalty or fine, and penalties and fines are not subject to GST.

It is important to note that the tax treatment of liquidated damages under GST will depend on the specific facts and circumstances of each case.

 

As and when there is any breach of contract, the suffering party would be paid the amount in the form of liquidated damage or compensation, penalty, or cancellation charges, etc.

Notably, there prevailed a lot of confusion in the trade and industry concerning the applicability of GST on such liquidated damage or compensation or penalty or cancellation charges vis-à-vis entry at para 5(e) of Schedule II of the Central Goods and Services Tax Act, 2017.

In a view to providing clarification on the above issue, the Ministry of Finance issued a circular no. 178/10/2022-GST dated 3^rd August 2022.

Understanding the scope of entry at para 5(e) of Schedule II –

As per para 5(e) of Schedule II, the following supply is specifically declared as a supply of service –

1.    Agreeing to the obligation to refrain from an act – Some of the relevant examples are –

• Non-compete agreement,
• An industry refraining from carrying out the manufacturing activity per certain specified hours.

2.    Agreeing to the obligation to tolerate an act/a situation – One of the relevant examples is –

• A hawker can operate in front of the shop on payment of a monthly amount to the shopkeeper.

3.    You are agreeing to the obligation to do an act.

Going through the above examples, it would be somewhat clear that the intention was to cover such services within the ambit of para 5(e) of Schedule II. However, taking the recourse of para 5(e) of Schedule II, demands were being raised on –

• Amount of charges i.e., fine/ penalty levied on dishonor of the Cheque,
• Liquidated damages paid on account of breach of contract,
• Late payment charges collected by the service provider on account of late payment of bills,
• The penalty levied for violation of any law,
• Notice pay recovery, etc.

Clarification provided on the taxability of liquidated damages and liked charges under GST –

General clarification was given vide circular no. 178/10/2022-GST dated 3^rd August 2022, is that –

• An agreement to do/ refrain from an act/ situation should not be imagined/ presumed to exist.
• In order to bring the payment within the ambit of GST, there should be an express/ implied promise done on the part of the recipient of the money to either agree to do or abstain from doing something against the money so paid to him.
• It is specifically clarified that the following payments are not a consideration for tolerating an act/ situation –
• Liquidation damages for breach of contract.
• Penalty for the dishonor of Cheque.
• Forfeiture of salary/ payment of the amount on the basis of the employment bond for leaving employment before the minimum agreed period.
• The penalty levied under the mining act on account of excess stock found with the mining company; etc.
• Importantly, such payment will not be considered as ‘consideration’ and accordingly will not be considered as ‘supply’ unless –
• Payment is made for an independent activity of tolerating an act; and
• Payment is made under an independent agreement entered for such activity of tolerating act.

Free Samples

 Free Samples

Free Samples are products given to consumers to try before purchasing. Providing free or sample products is a tried and tested marketing method used by various industries in India such as pharmaceuticals, FMCG, etc.

For example, buy 3 and get 1 Soap free or 1 Garment free on purchase of 3 Garments or distribution of free samples to distributors, agents, customers, doctors, etc.

When does a product qualify as a free sample?

To qualify as a free sample, a product normally possesses the following features:

a) Distributed free of cost i.e., without any consideration.

b) Are marked NOT FOR SALE and normally no MRP is printed.

GST is applicable when a transaction involves the supply of goods/services for consideration. Goods or services that are supplied free of cost (without any consideration) cannot be treated as ‘supply’ as per Schedule I of the CGST Act, 2017 except on activities specifically mentioned on which GST needs to be charged even when supplied without consideration. Section 17(5)(h) of the CGST Act, 2017 restricts ITC on goods disposed of by way of gift or free samples. Thus, ITC has to be reversed on goods distributed as free samples.

Output Tax Payment and availment of credit to a certain extent depend on the taxability at the time of supply of such free samples / free supplies. The same has been summarized below:

CONDITION	OUTPUT TAX TREATMENT	ITC TREATMENT
Goods manufactured as free samples and then distributed	No output tax payable	ITC to be reversed
Goods manufactured as normal goods and then transferred as free samples	No output tax payable	ITC to be reversed
Goods manufactured as free samples and then distributed to RELATED PARTY	Output tax payable	ITC allowed
Free supply i.e., without any consideration	No output tax payable	ITC to be reversed
Buy one get one free offer	Output tax payable on assessable value	ITC allowed

 

Which Activities are Treated as Supply Even If Made Without Consideration?

Permanent transfer or disposal of business assets where input tax credit has been availed on such assets. This is not applicable when ITC was not availed on such assets.

Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business.

By a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or.

If the agent is working on a commission basis and does not undertake goods, then there is no need to pay GST on goods, but the agent needs to discharge GST on the commission earned.

Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

Further, as per Circular No. 92/11/2019 – GST issued by the CBIC released on 07th March 2019, states that any goods or gifts provided under the category of gifts, samples, and other related categories without consideration, it shall not become categorized as ‘supply’ as per the Act. Hence, the input tax credit shall also not apply to those said goods.

From Schedule I reproduced above, it can be noted that the supply of free samples does not fall under the category of activities to be treated as supply even if made without consideration.

How to disclose free Samples supplies in the returns?

Since the free Samples are not supplies, there is no requirement of disclosing the same as outward supplies in the returns. The credit relating to the same can be disclosed in Table 4 of Form GSTR 3B as Ineligible ITC under Section 17(5) or Credit Reversal under “Others” if credit was already availed.

Export of Service

 Export of Service

Export of Services:

• Section 16 of the IGST Act places export of goods and services on the same footing; Export of services shall be treated as zero rated supply.

• The supplier can either export services after paying IGST and claim refund or can export services without payment of IGST under bond or under letter of undertaking.

“Export of Services” as defined under Section 2 (6) of IGST Act, 2017 means the supply of any service, when –

• the supplier of service is located in India;

• the recipient of service is located outside India;

• the place of supply of service is outside India;

• the payment for such service has been received by the supplier of service in convertible foreign exchange; and

• the supplier of service and the recipient of service are not merely establishments of a distinct person.

Anomaly in definition of export of services: Two conditions have been imposed in the definition of export of services which shall create unnecessary hardship to the service exporters.

1. The receipt of payment in convertible foreign exchange. No such conditions are there in case of export of goods.

2. It says that supplier of service and recipient of service must not be merely distinct persons. It is like saying that if a development centre of TCS in India is supplying services to TCS in some foreign countries, it shall not be treated as export. No such condition is there in case of goods. If Suzuki export goods to Suzuki outside India, it is very well an export.

Place of Supply for Export of services

• The default rule for place of supply (export of service) is the location of the service recipient if the address of the recipient is available.

• exporters must ensure that the address of service recipient can be presented before the authorities on request.

• Information Technology software, software development, BPO operations, software consultancy, etc. has been declared as service, Place of supply of software shall always be the location of the recipient.

• Apart from these, this rule will also apply to other services like software support/ maintenance and intermediary services as there are no exceptions under GST.

Authority on advanced ruling

 Authority on advanced ruling

Section 97: Application for advance ruling

1. An applicant desirous of obtaining an advance ruling under this Chapter may make an application in such form and manner and accompanied by such fee as may be prescribed, stating the question on which the advance ruling is sought.

2. The question on which the advance ruling is sought under this Act, shall be in respect of,––

(a) classification of any goods or services or both;

(b) applicability of a notification issued under the provisions of this Act;

(c) determination of time and value of supply of goods or services or both;

(d) admissibility of input tax credit of tax paid or deemed to have been paid;

(e) determination of the liability to pay tax on any goods or services or both;

(f) whether applicant is required to be registered;

(g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.

Section 98: Procedure on receipt of application

1. On receipt of an application, the Authority shall cause a copy thereof to be forwarded to the concerned officer and, if necessary, call upon him to furnish the relevant records:

Provided that where any records have been called for by the Authority in any case, such records shall, as soon as possible, be returned to the said concerned officer.

2. The Authority may, after examining the application and the records called for and after hearing the applicant or his authorised representative and the concerned officer or his authorised representative, by order, either admit or reject the application:

Provided that the Authority shall not admit the application where the question raised in the application is already pending or decided in any proceedings in the case of an applicant under any of the provisions of this Act:

Provided further that no application shall be rejected under this sub-section

unless an opportunity of hearing has been given to the applicant:

Provided also that where the application is rejected, the reasons for such

rejection shall be specified in the order.

3. A copy of every order made under sub-section (2) shall be sent to the applicant and to the concerned officer.

4. Where an application is admitted under sub-section (2), the Authority shall, after examining such further material as may be placed before it by the applicant or obtained by the Authority and after providing an opportunity of being heard to the applicant or his authorised representative as well as to the concerned officer or his authorised representative, pronounce its advance ruling on the question specified in the application.

5. Where the members of the Authority differ on any question on which the advance ruling is sought, they shall state the point or points on which they differ and make a reference to the Appellate Authority for hearing and decision on such question.

6. The Authority shall pronounce its advance ruling in writing within ninety days from the date of receipt of application.

7. A copy of the advance ruling pronounced by the Authority duly signed by the members and certified in such manner as may be prescribed shall be sent to the applicant, the concerned officer and the jurisdictional officer after such pronouncement.

 

Scrutiny of returns under GST

 Scrutiny of returns under GST

Section 61 of CGST Act, 2017 contains the provisions of scrutiny of GST returns which empowers proper officer to scrutinize the return and related particulars furnished by the taxable person to verify the correctness of the return and inform him of the discrepancies noticed, if any, in a manner as maybe prescribed. Rule 99 of CGST Rules, 2017 provides for manner of scrutiny of returns.

 

Statutory provision for Scrutiny of Returns (Section 61)

 

(1) The proper officer may scrutinize the return and related particulars furnished by the registered person to verify the correctness of the return and inform him of the discrepancies noticed, if any, in such manner as may be prescribed and seek his explanation thereto.

(2) In case the explanation is found acceptable, the registered person shall be informed accordingly, and no further action shall be taken in this regard.

(3) In case no satisfactory explanation is furnished within a period of thirty days of being informed by the proper officer or such further period as may be permitted by him or where the registered person, after accepting the discrepancies, fails to take the corrective measure in his return for the month in which the discrepancy is accepted, the proper officer may initiate appropriate action including those under section 65 or section 66 or section 67, or proceed to determine the tax and other dues under section 73 or section 74.

 

Gist of provisions of section 61 of CGST Act, 2017

·       The proper officer can scrutinize the return to verify its correctness.

·       It is a non-compulsory pre-adjudication process.

·       In simple words, it is not mandatory for the officer to scrutinize return.

·       Scrutiny of returns is not a legal or judicial proceeding, i.e., no order can be passed.

·       The officer will ask for explanations on discrepancies noticed.

·       The proper officer may issue SCN, if required.

·       Department can select returns for verification – Can seek explanation for discrepancy detected

·       GST officers can scrutinize a GST return and related particulars furnished by the registered person to verify the correctness of the return.

·       In case of any discrepancies noticed by the officer, he/she would inform the same to the registered person and seek his explanation on the same.

 

On the basis of the explanations received from the registered person, the officer can take following actions:

 

If the explanation is satisfactory, officer will inform about the same to the registered person and no further action taken.

 

If the explanation provided is not satisfactory or the registered person has failed to take corrective measures after accepting the discrepancies, proper officer to initiate appropriate action: Conducting audit of registered person,

conducting special audit, inspect and search the place of business of registered person, or initiate demand and recovery provisions.

 

What is meant by scrutiny has not been defined in GST law. Though, scrutiny cannot be considered as detailed and independent as of audit, scrutiny implies verification of correctness of information submitted in the returns by the taxpayers. It is basically a scrutiny of information submitted, its timeliness, its authentic accuracy and corroborative verification from other documents.

 

The scrutiny of returns could be manual, desk review or an online evaluation. The scrutiny of returns becomes important in an era of self-assessment where the need for a strong compliance mechanism cannot be over emphasized. The person who does the scrutiny is called scrutineer and the process is called scrutiny or to scrutinize

 

When any return is selected for scrutiny, the proper officer verifies the information with reference to the information available with him. In case of observance of any discrepancy, to issue notice to the taxable person and seek his explanation to the discrepancy observed by him.

 

There could be following different scenarios in response to such notice received from proper officer, viz

 

(a) The taxable person accepts the discrepancy, deposits the shortfall in the payment of tax along with interest thereon and informs to proper officer.

 

(b) The taxable person submits the explanation to the points raised by proper officer in his reply, the explanation is found to be acceptable to proper officer, the proper officer closes the matter and informs the taxable person.

 

(c) The explanation is not found to be acceptable or after accepting the discrepancy, the taxable person fails to deposit the tax with interest, the proper officer takes the following actions.

·       Orders for audit by tax authorities – section 65 of the CGST Act, 2017

·       Orders for special audit – section 66 of the CGST Act, 2017

·       Initiates inspection, search, or seizure – section 67 of the CGST Act, 2017

·       Determination of tax not paid or short paid – section 73 of the CGST Act, 2017

·       Determination of tax not paid or short paid by reason of fraud or wilful misstatement –section 74 of the CGST Act, 2017

 

 

Time limit for reply to Notice

 

The notice of discrepancy issued by proper office in respect of scrutiny of returns has to be replied within such time not exceeding 30 days from date of service of notice or such further period as may be permitted by proper officer

Applicable Rules

Rule 99 of the CGST Rules, 2017, provide for manner and procedure for provisional assessment undersection 61 of the CGST Act, 2017 which inter-alia, contain the following:

rule	Providing for
1	Provides for initiating scrutiny of returns furnished by registered person, based on information available; issue notice on finding discrepancies, seeking explanation, quantifying the liability and extending the period of 30 days if deemed fit.
2	Provides the manner in which registered person may either accept the discrepancy or furnish an explanation to the proper officer
3	Manner in which proper officer should send the intimation to the registered person in case the information / explanation is, acceptable

Applicable Forms

According to rule 99 of CGST Rules, 2017, following forms are required to be used for various purposes and are to be filed online

S.No.	Form No.	Purpose
1	GSTASMT-10	Issuance of notice by proper officer on noticing discrepancies on return
2	GSTASMT-11	Response by registered person against ASMT-10 by way of accepting the discrepancy or submitting explanation
3	GSTASMT-12	Intimation by proper officer on finding explanations satisfactory