Section 51 of GST – Tax deduction at source (Detailed Analysis)

In terms of Section 51 of CGST Act, 2017 read with Notification No. 50/2018- Central Tax dated 13.09.2018, w.e.f. 01.10.2018 the following category of persons are liable to deduct GST @ 2% (CGST @1% & SGST @1%) on supplies made under a contract that exceeds Rs.2.5 lakh.

Section 51 of GST

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Tax Deduction at Source

(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) 18[A certificate of tax deduction at source shall be issued in such form and in such manner as may be prescribed.]

(4) 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.

(5) If any deductor fails to pay to the Government the amount deducted as tax under subsection (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.

(6) The determination of the amount in default under this section shall be made in the manner specified in section 73 or section74.

(7) 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.

Related provisions of the Statute

Section or Rule	Description
Section 2(43)	Definition of Electronic Cash Ledger
Section 2(53)	Definition of Government
Section 2(82)	Definition of Output Tax
Section 2(94)	Definition of Registered Person
Section 2(97)	Definition of Return
Section 2(117)	Definition of Valid Return
Section 49	Payment of tax
Section 39	Furnishing of Returns

Introduction

With an objective of ensuring smooth rollout of GST, the provisions of Tax Deduction at Source (Section 51 of the CGST / SGST Act 2017) and Tax Collection at Source (Section 52 of the CGST/SGST Act, 2017) has been postponed. Thereby, Persons who will be liable to deduct or collect tax at source will be required to take registration, but the liability to deduct or collect tax will arise from the date the respective sections are brought in force. It has further been clarified that persons supplying goods or services through electronic commerce operator liable to collect tax at source would not be required to obtain registration immediately, unless they are so liable under Section 22 or any other category specified under Section 24 of the CGST Act, 2017.

The GST Council in the 26th GST council meeting, held on 10.03.2018 decided that the provisions for TDS under section 51 of the CGST Act and TCS under section 52 of the CGST Act shall remain suspended till 30.06.2018.

Notification No. 33/2017 – Central Tax has appointed 18th September 2017 as the appointed date for sub section 1 of section 51 to come into force and notifies the following persons under Section 51(1)(d) as liable for TDS;

(a) an authority or a board or any other body, –

• (i) set up by an Act of Parliament or a State Legislature; or
• (ii) established by any Government, with fifty-on

(b) society established by the Central Government or the State Government or a Local Authority under the Societies Registration Act, 1860 (21 of 1860);

(c) public sector undertakings:

The Notification also states that TDS provisions shall come into effect from a date to be notified subsequently, on the recommendations of the Council, by the Central Government.

Notification No. 50/2018 Central Tax dated 13.09.2018 seeks to bring section 51 of the CGST Act (provisions related to TDS) into force w.e.f 01.10.2018. Reference may be had to circular 76/50/2018-GST dated 31 December, 2018 which makes it clear that the 51% condition is applicable to both limbs of ‘authority or board’ appearing in notification issued under section 51(1)(d) (under para (a) above).

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.

Analysis

CGST Act vide Section 2 (53) defines the term Government to mean the Central 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 or State Government

Local Authority.

Government Agencies.

Persons or category of persons notified by the Central Government on recommendation of the Council. (Notified vide Notification No. 33/2017- Central Tax)

1. The above ‘persons’ are referred to as deductors.

2. The deductors have to deduct tax at the rate of 1% CGST & 1% SGST or 2% IGST 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. TDS applies on ‘taxable goods or services’ supplied and not on ‘all taxable supplies’. Please note that ‘taxable supplies’ is defined in section 2(108) of CGST Act which covers all supplies that are ‘leviable’ to tax (even if exempt by notification under section 11 of CGST Act). But, ‘taxable goods and services’ requires to inquire into whether the goods or services are taxable or exempt. If they are exempt, then TDS will not apply.

4. 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.

Sub Rule 9 of rule 87 of the CGST rules provides) that payment shall be made by debiting the electronic cash ledger and crediting the electronic tax liability register.

5. As per Rule 66, the deductor shall furnish a TDS certificate in Form GSTR-7A to the deductee mentioning therein 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

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 and reported in the return in Form GSTR-7 by the deductor shall reflect in Electronic Cash Ledger of deductee once it is claimed as credit to the Electronic Cash Ledger by the deductee. 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 amounts 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).

Comparative review

Provisions for deduction of tax at source exist in the VAT laws. There were no TDS provisions in central excise or service tax laws, though there was a concept of reverse charge. Under most State VAT laws, TDS provisions were applicable on payments made to works contractors. Some States had provisions for TDS on ‘transfer of right to use goods’

Comparative table between State VAT Law and CGST Act:

S. No.	. State VAT Law	CGST Act
1	Applicable only to works contractors.	Applicable to recipients notified by the Central Government on recommendations of GST council.
2	Two different standard rates	One standard rate viz. 1% CGST + 1% SGST (2% IGST)
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 (Refer Notification 33/2017 – Central Tax and para 51.1)
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.

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