TDS on supplies by unregistered dealers under CGST Act

[Lalitha Krishnamurthy]

Is it necessary to deduct TDS under section 51 of the CGST Act when the supplier is unregistered under the said Act and the service recipient is otherwise required to deduct? If so, how will the supplier claim refund?

[Shilpi Jain]

TDS is not required to be deducted if the supplier is un-registered and is not required to pay GST on the outward transaction.

Refer para 4 of Standard Operating Procedure - TDS under GST - A ready reckoner for DDOs/other Deductors in GST Source : C.B.I. & C. website - extracted below:

4. When tax deduction is not required to be made under GST :

Tax deduction is not required in following situations :

(a) Total value of taxable supply £ ₹ 2.5 Lakh under a contract.

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

(c) Receipt of services which are exempted. For example services exempted under Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 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 28-6-2017 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 1-7-2017, but where payment for such sale is made on or after 1-7-2017 [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 1-10-2018.

(j) Where any amount was paid in advance prior to 1-10-2018 and the tax invoice has been issued on or after 1-10-18, to the extent of advance payment made before 1-10-2018.

(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.

No such clarity is coming out from the provisions under the law. Further, in case the recipient deducts the amount, the supplier may not be able to claim refund as presently no mechanism is available at the portal to apply for refund.

[Lalitha Krishnamurthy]

Thank you Ms. Shilpi Jain. As rightly pointed out by you, the legal provision is not clear.

Is " Standard Operating Procedure" prescribed for DDOs/other Deductors in the C.B.I. & C. website binding on the Department?

AI Summary

TDS on supplies to unregistered suppliers: deduction not required and refund mechanism currently unavailable, creating compliance uncertainty. TDS under section 51 is not required when the supplier is unregistered and not liable to pay GST; the SOP for deductors lists payment to an unregistered supplier as an exclusion, but the legal provision lacks clarity and there is currently no portal mechanism for the unregistered supplier to claim refund if tax is deducted.