2021

TAX DEDUCTED AT
SOURCE

SHIWANG AGRAWAL
CHARTERD ACCOUNTANT
 SHIWANG AGRAWAL
CHARTERED ACCOUNTANT

TAX DEDUCTED AT SOURCE (SECTION 51)

BASIC POINTS

1. There are certain circumstances where the provisions under section 51

related to tax deduction at source are triggered.
2. In this mechanism, the recipient while making payment to the supplier
deduct some amount at a prescribed rate and deposit it to the government
on behalf of the supplier.
3. There are certain exceptions also for the general rule.
4. The deductor will also furnish a certificate to the supplier as a proof of
deduction tax at source.
5. The deductee can claim the credit of tax deducted at source.
6. In case of excess deduction or erroneous deduction, provision of refund will
be applicable.

Now there are a lot of questions in Mind: -

A) What are the circumstances when the provisions of section 51 will be
triggered?
B) Whether all the persons are liable to deduct tax at source or there are
certain specified persons only who are liable to deduct tax at source?
C) What are the circumstances when the provisions of sec 51 will not be
applicable?
D) What are the rates for tax deduction?
E) What will be the procedure for tax deduction?
F) What will be the process of depositing the tax so deducted to the
Government? What will be the timelines for depositing the tax so deducted
to the Government?
G) Whether any TDS certificate will be issued by the deductor? If yes, what
will be the format and what all information will be required to be furnished
in it?
H) What will be the consequences if the TDS so deducted is not deposited with
the Government?
I) What will be the consequences if TDS certificate is not issued within
prescribed time period?
J) How the deductee will take credit of such tax deducted out of his payment?
K) What will happen if there is some excess deduction or erroneous deduction?

Let’s understand all these points one by one.

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 SHIWANG AGRAWAL
CHARTERED ACCOUNTANT

(A) Circumstances when the provisions of Section 51 will be triggered

Provisions of section 51 will be triggered if all the following conditions will be
fulfilled: -
1. There should be a supply.
2. Such supply should be of taxable goods or taxable services or both.
3. Such supply should be done under a contract.
4. The value of such contract should exceed two lakh- and fifty thousand
rupees.
5. Supplier (Deductee) can be any Person but the recipient should be specified
person (Deductor).

For the purpose of point 4, the value of supply shall be taken after excluding CGST, SGST, IGST, UTGST and Cess.

(B) Specified Persons

As per section 51 (1), following persons are specified for tax deduction at
source: -
1. A department or establishment of the Central Government or State
Government.
2. Local Authority
3. Governmental Agencies
4. Persons or Category of Persons notified by the Government on the
recommendation of the Council.

Till date government notified following persons or category of persons who are
liable to deduct tax at source: -
1. An Authority or a Board or any other Body-
(a) Set up by an act of Parliament or a State Legislature; or
(b) Established by any Government
With 51% or more participation by way of equity or control, to carry out
any function.
This condition of 51% or more participation by way of equity or control is
applicable to both the clauses (a) and (b)
2. Society established by Central Government or State Government or Local
Authority under the Societies Registration Act, 1860
3. Public Sector Undertakings

Definition of Local Authority

Local Authority means
(i) A “Panchayat” as defined in Article 243 (d) of the Constitution.
(ii) A “Municipality” as defined in Article 243P(e) of the Constitution
(iii) A Municipal Committee, a Zilla Parishad, a District board, and any other authority legally entitled to, or
entrusted by the Central government or any State Government with the control or management of a
Municipal or Local Fund.
(iv) A Cantonment Board as defined in Section 3 of the Cantonments Act, 2006
(v) A Regional Council or a District Council constituted under the Sixth Schedule to the Constitution;
(vi) A development Board constituted under Article 371 and Article 371J of the Constitution.
(vii) A Regional Council constituted under Article 371A of the Constitution.
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 SHIWANG AGRAWAL
CHARTERED ACCOUNTANT

Note related to applicability of section 51 for CG/SG establishment or department

As per section 51 (1), a department or establishment of SG/CG is required to deduct tax if other conditions are fulfilled.
Ministry of Defence will also come under CG/SG department or establishment but it is an exception.
Only certain notified authorities of Ministry of Defence are liable to deduct tax at source and all other remaining
authorities of Ministry of Defence are exempted from the provisions of sec 51(1)
Such notified authorities of Ministry of Defence are specified under Notification No. 57/2018-CT dated 23.10.2018

(C) Circumstances where provisions of section 51 are not applicable

Tax is not liable to be deducted at source in the following cases; -

1. When goods or services or both are supplied from a PSU to another PSU.
2. When supply of goods or services or both takes place between one person
to another person specified under section 51 (1) (a), (b), (c) and (d).
3. When the location of the Supplier and the place of Supply is in a State/UT
which is different from the State/UT of registration of the recipient.

s (D) Rate of deduction of tax at Source

1. Tax would be deducted @ 1% under CGST from the payment made to the
Supplier.
2. This rate is under CGST and an equivalent rate will be there under SGST
also. Therefore, the effective rate will be 2% (1% + 1%)
3. Tax will be deducted from the value of supply i.e. excluding CGST, SGST,
UTGST, IGST & Cess.
4. TDS will be deducted at the time of payment.
5. Individual supplies may be less than 2,50,000/- but if the total contract
value is more than 2,50,000/-, TDS has to be deducted.

(E) Time Limit for depositing TDS to the Government and consequences of Non-
Deposit, Short Deposit or Late Deposit

1. The amount of TDS should be deposited to Government account by 10 t h of

succeeding month.
2. If the deductor has not deposited the TDS amount as per prescribed time
limit, then he is liable to pay penal interest @ 18% u/s 50 in addition to
the amount of tax deducted.

(F) Certificate of Tax Deduction at Source

1. The deductor is required to issue a system generated TDS certificate to

the deductee.
2. TDS certificate should be in a prescribed form i.e. Form GSTR 7A.
3. TDS certificate should be issued within 5 days of remittance to
Government.

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 SHIWANG AGRAWAL
CHARTERED ACCOUNTANT

4. TDS Certificate (Form GSTR 7A) should contain the following particulars:
a) TDS Certificate No.
b) GSTIN of Deductor
c) Name of Deductor
d) GSTIN of Deductee
e) Legal Name of Deductee
f) Trade Name of Deductee
g) Tax period in which tax deducted and accounted for in GSTR-7
h) Detail of Supplies
i) Contract Value
j) Rate of Deduction
k) Amount of Tax deducted
l) Amount paid to Government
5. If the deductor fails to furnish the TDS Certificate within 5 days of the
remittance, the deductor has to pay a late fee @ INR 100 per day from
the expiry of the 5 t h day until the day he furnishes the certificate.
6. Maximum late fee will be 5000/-

(G) Tax Credit to Deductee

1. The deductor is required to furnish return in Form GSTR 7 u/s 39(3) to

file the details of tax deducted at Source.
2. The amount of Tax deducted will be reflected in Electronic Cash Ledger of
the deductee.
3. The deductee can claim the credit of such tax so deducted and reflected in
his electronic cash ledger.
4. The deductee can use this credit for payment of tax or any other amount.

(H) Refund of excess or erroneous Deduction

1. If there is any excess or erroneous deduction, then the same can be claimed
back as refund as per section 54.
2. However, if the deducted amount is already credited to the electronic cash
ledger of the supplier, the same shall not be refunded.

(I) Amount in Default u/s 51

If there is any default under this section, then the amount in default will be
determined as per section 73 or section 74.

(J) Standard Operating Procedure on TDS

Questions Answers
Whether TDS will be applicable or not in c ase where
TDS will not be applicable.
total contract value = 3 lacs and it includes taxable

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 SHIWANG AGRAWAL
CHARTERED ACCOUNTANT
supply of INR 2 lacs and Exempted supplies of INR 1
lac?
Whether separate GSTN would be allotted to a
Yes
registered person for deducting TDS?
Th e Governmen t Department is required to take
re gistration as a normal taxpayer only if engaged in
Whether a Government Department, required to
commercial activities and make regu lar business.
deduct tax at source, is liable to take registration as
However, if it is not making any taxable supply of goods
a normal taxpayer?
and/or services, it is required to register only as a
deductor of tax at source.
Whether TDS will be applicable in case of exempted
supply of goods/services?
No
Exempted supplies include Non-Taxable supplies as
well as transactions prescribed under Schedule III
As per sec 24(vi), the persons who are required to deduct
What are the provisions relating to TDS registration
tax u/s 51, whether or not separately registered under
under GST La w?
the act, liable to be registered as TDS deductor.
Whether TDS will be applicable in case where tax is
No
to be paid on reverse charge by the recipient?
Whether it is mandatory for the Supplier to take
registration if he is supplying goods/services to No
Specified Persons and the contract value > 2.5 lacs?
Whether TDS will be applicable in case supplier is
No
Unregistered Person?
Deduction is required in respect of payment of Rs. 3 Lakh
only i.e. for payment in respect of taxable supply.
What will be the TDS implication in below case? Books are e xempted goods; no deduction is required in
Educa tion Department is making payment of Rs.5 re spect of supply of books. However, pa yment involving
Lakh to a supplier of ‘printed books and printed or ‘printed or illustrated po st cards’ is for supply of taxable
illustrated post cards’ where payment for books is goods and value of such supply is > Rs.2.5 Lakh; so,
Rs.2 Lakh and Rs.3 Lakh is for other printed or deduction is required.
illustrated post cards. Th ere will be no de duction of tax on the value of
exempted g oods or services or both even if the exempt
and taxable supply are billed together.
Whether TDS will be applicable in case supplier is
Yes, provided all ot her conditions are fulfilled.
Composite Taxpayer?
What will be the TDS implication in below case?
Specified Person enter into a contract with a s upplier
ABC where the value of taxable supply is Rs.2 Lakh Yes, TDS shall have to be deducted on entire amount i. e.
and payment of Rs.1 Lakh has been made on Rs. 6 lakhs while making remaining payment o f Rs.5
15.10 .2020. Now, on 20.1 0.2020 the contract value is Lakh. In other words, 12,000/- would be deducted when
revised from Rs.2 Lakh to Rs.6 Lakh. Will the re maining payment of Rs.5 Lakh is made
specified pers on be liable to deduct any tax and if
so, on which amount?
If the time of supply and payment date are in two
Mo nth in which payment date will fall. TDS will be
different months, then sec 52 will be applicable in
deducted at the time of pa yment not at the time of supply.
which month?
Th e Ded uctor i.e. DDO is required to furnish a return in
FO RM GSTR-7 electronically for the month in which su ch
During October, 2020, I have not deducted any
deductions have been made in accordance with the
amount of GST. Do I need to file return for the month
provision of section 39(3) of the CGST/SGST Acts, 2017.
of October?
Hence, submission of FORM GSTR-7 is not required for
a month in which no deduction is made

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