Pagar Khata -Staff Payroll & Attendance Management
Tax deducted from the source or TDS is a form of tax collected by the Government of India and administered by the Central Board Of Direct Taxes, i.e., CBDT. According to the Income Tax Act, it is required to deduct tax as TDS if the payment exceeds the limits of the threshold.
For example, when an employer pays an employee his salary, the employer must deduct a percentage of that salary as TDS before making the payment and deposit money with the Government.
A company or person who deducts TDS is called a deductor and the company or person from whom TDS is deducted is a deductee. The payer is required to pay tax to the central government and the taxpayer will be entitled to a tax deduction on the basis of Form 26AS.
Also Read: How To Make TDS Payment Online?
As we all know, now is the time for the continuous integration of TDS as many face confusion during the tax deduction such as when and how much TDS should be deducted and when the invoice is required to be issued.
The total value of an invoice includes GST. So, the real question here is whether TDS should be deducted from the GST invoice or not? Let's find out the answer to this question based on the TDS on GST circular.
Therefore, when the GST on Services part has been shown separately in the invoice there is no TDS on GST amount.
TDS Deduction on Service Tax
It was previously specified by the Central Board of Direct Taxes (CBDT) that there is no need for deduction of TDS if service tax is shown separately on the invoice.
On the introduction of GST, CBDT received a lot of questions about TDS services and the treatment of the services component of GST.
Also Read: TDS Rate Chart For FY 2021-22
Mr. Ajay makes a supply of taxable service to Mr. Bhanu for Rs 2,00,000 and he also charges Rs. 18,000 as CGST at 9% and Rs. 18,000 as SGST (or UTGST) at 9% separately in the invoice, the total value of invoice being Rs, 2,36,000. Then Mr. Bhanu is required to deduct TDS under section 194J only on the taxable value of supply (without including GST) i.e. Rs. 2,00,000 and not on the full value of the invoice of Rs. 2,36,000.
However, if Mr. Ajay charges Rs. 2,36,000 as the value of taxable supply of services inclusive of GST from Mr. Bhanu and does not show ‘GST on Services’ component separately in the invoice, then Mr. Bhanu is liable to deduct TDS under section 194J on the full value of invoice i.e. Rs. 2,36,000.
So in the second case, TDS on GST bill has to be deducted whereas the first one doesn’t require it.
Ajay pays Rs. 1,00,000 towards construction for an office building. As the supply is being made within the state, that is Intra State contract, CGST and SGST at 9% will be applied, that is, Rs. 9,000 for CGST and Rs. 9,000 for SGST. The total amount including intrastate taxes will be Rs. 1,18,000. As per section 194J, the amount of TDS to be deducted at 10% on the contract price will be Rs. 10,000 and the total amount payable by the Ajay will be Rs. 1,08,000.
Referring to the same example as above (example no. 2), if the supply has been made in different states, that is, Inter-State supply, then IGST will be applied at 18%, that is, Rs.18,000 on the contract price. The total amount including IGST will be Rs. 1,18,000. As per section 194J, the amount of TDS to be deducted @10% on the contract price will be Rs.10,000 and the total amount payable by Ajay will be Rs. 1,08,000.
Here, the contract price including all the taxes will be Rs. 1,18,000. As per section 194J, the amount of TDS to be deducted at 10% on the contract price will be Rs. 11,800 and the total amount payable will be Rs. 1,06,200.
All these examples show you how to calculate the TDS on bill amount in different situations.
Also Read: TDS On Salary Under Section 192
The basic reason behind this TDS on GST provision in the Income Tax,1961 is to ensure that the GST paid by the receiver of the service does not form part of the income of the provider of the service. The service provider acts as a collection agency for the government to collect GST. Without this provision, the service recipient would have to charge TDS to GST and the service provider would later have to claim the same refund in the form of ITC. The result of the provision for businesses (service providers) will mean fewer financial limits and thus reduce operating costs.
Consequences of Not Complying With The TDS Provisions
In case any excess or incorrect amount is deducted and paid to the government you can apply for a refund under category 54 of the CGST Act, 2017. However, when deductions have already been entered in the electronic ledger of the supplier, that money will not be refunded.
So in conclusion, it is clear from the discussion above that if the GST Services component is shown separately from the invoice, then there will be no TDS on GST bill. The provisions of this circular apply to all old contracts entered into before 01.07.2017. The advantage of this circular is that it ensures fewer financial restrictions for the service providers and reduces operating costs.
TDS is deducted from my salary and I pay other taxes under the Income Tax Act. Why should I need to deduct TDS again?
TDS under Income Tax is different from TDS on GST. Tax deductions under GST Rules are required to be made when making payments to suppliers/sellers of goods or services or both under the GST for the provision of tax on goods or services or both.
I did not receive the TDS certificate from the deductor. Can I include TDS in my refund?
Yes, the tax deduction in your case will be reflected on your Form 26AS, so, you can look at Form 26AS and claim the tax credit accordingly. However, the TDS claim to be made on your refund must be verified in accordance with the TDS credit shown in Form 26AS. If there is a difference in the actual deduction and the tax credit shown on Form 26AS you will have to contact the tax deductor and correct the difference.
How do I know if the amount of tax deducted from my salary is deposited by the deductor?
To find out the amount of tax deducted by a taxpayer, you can ask the taxpayer to issue you a TDS certificate in respect of the tax deducted by him. You can also check Form 26AS in your account at https://incometaxindiaefiling.gov.in
What should you do if TDS credit is not shown on Form 26AS?
The TDS credit not showing on Form 26AS may be due to a number of reasons such as non-filing of the TDS statement by the deductor, quoting the incorrect PAN of the deductee in the TDS statement filed by the deductor. Therefore, if a TDS credit is not shown on Form 26AS, the deductee must contact the deductor to obtain the reasons for the non-disclosure of the TDS credit on Form 26AS.
Pagar Khata -Staff Payroll & Attendance Management