Ever since Goods and Service Tax (GST) has been implemented, it has really kept the taxman as well as the implementers along with the taxpayers on their toes. A whole lot of effort has gone into making compliance with the GST law simple, but clarifications have continued unabated to resolve certain issues and to convey the intention of law. Recently, the provisions relating to deduction of tax at source (TDS) have been made effective which has also created a few implementation issues. Let us briefly examine them in this article.
TDS is deductible only at the time of making payment towards value of supply as per the mandate of the provisions and there is no correlation with the date of invoice. However, the same does not seem to be the intention as one can discern from the Standard Operating Procedure (SOP) issued by the GST Council. The SOP states that TDS is not required on the payments made post 1.10.2018 where invoice was already issued before the said date. When payment for the supply is the point which triggers TDS provisions, reference to issuance of invoice and reconciling such position may be difficult. This clarification in SOP may be due to the fact that time of supply gets completed on issuance of invoice and tax payment would have been made by the supplier. But the provisions contained in Section 51 of CGST Act do not reflect such position as the deductor is mandated to deduct whenever he makes payment.
TDS on advances for procurement of goods
Another area of confusion or lack of clarity pertains to payment of advance for supply of goods. Due to certain practical issues, the provisions relating to tax liability getting triggered on payment made in advance for procurements of goods have been kept in abeyance. This means that the recipient of supply is not liable to make TDS deductions as no taxable event has occurred yet. When the actual supply of goods will flow from the vendor, recipient would be left with nothing to secure his TDS compliances as he has already made the payment earlier and the customer cannot make TDS deduction subsequently. This leaves the taxpayers in a strange situation as even when they would like to ensure compliance, the system may not support the same.
Issuance of TDS certificate
Compliance with TDS provisions does not end with filing the returns by the deductor. The provisions mandate issuance of certificate to the deductee in five days, failing which deductor shall be liable to pay late fee for every day of delay. The CGST Rules seem to take away that obligation by providing for automatic generation of TDS certificate to the deductee, through common portal. Now, the question arises as to how the responsibility of the deductor for issuance of certificate is to be fixed in case the common portal fails to generate the certificate to the deductee within the prescribed time limit. Whether the deductor will still be held liable for late fees?
Is there is a revenue loss to government?
There is no exemption from the TDS provision in respect of supplies made by a government department (if such supplies are taxable) and TDS will be required to be made by the recipient. This means credit of the amount to the extent of TDS to the Consolidated Fund of India (CFI) gets deferred which will have an impact on government’s finances. In the absence of TDS provisions, payment made in respect of such supplies would have directly flowed to CFI, however, due to deduction of TDS, the deducted portion shall be credited to the CFI at a subsequent date which temporarily creates a stress on the inflow of funds. This may require the immediate attention of the taxman.
Intention of the law
TDS is not an alien concept in the indirect tax regime, it was also existent in the erstwhile VAT laws. Undoubtedly, the benefits of these provisions achieved by the revenue authorities not only in the erstwhile VAT regime but also in the direct tax regime, cannot be questioned. The government aims to plug every gap that could have led to evasion of tax, and so have remained the intention of the taxman when the provisions of TDS were rolled out. However, keeping a provision like TDS limited to only certain categories of assessees and that too only to the government departments or its bodies raises everybody’s eyebrows. Already matching of supplier’s invoices as populated in GSTR-2A and credit taken in GSTR-3B is in place which creates a check that no supply goes unreported, then what purpose would these TDS provision serve is not at all clear. Moreover, considering the fact that no TDS implication is attracted on the exempt supplies or on procurements from unregistered dealer, it is not known how any irregularities arising will attract the attention of the department.