1. Introduction
Under GST law there is concept of time of supply which refers to point in time the supply is deemed to be made. On this date the liability to pay GST by the supplier or the recipient (for goods or services under reverse charge mechanism) is crystallized. Accordingly identifying the time of supply is of utmost importance for supplier / recipient in order to discharge their GST liability within the due date prescribed in GST law which is linked to the time of supply.
Similarly, the deductors also need to identify what is the ‘time of tax deduction’ so that they can also deposit the tax deducted within the due date of deposition and file returns accordingly. Now the question may blink into our minds as to which event will be the time of tax deduction viz whether it will be the date of contract or date of supply or date of invoice raised by supplier or date of creating of liability in books of accounts or date of payment of invoice by the deductor.
The provisions regarding time of tax deduction are solely been discussed in the succeeding paras. It should however be kept into mind that in many cases like contract value not more than Rs 2.50 lakh, supplies under RCM , supplied from unregistered supplier etc , no tax is required to be deducted at source.
2. Time of tax deduction
As per Sec 51(1) of the CGST Act, 2017 which is the charging section as regards TDS is concerned, tax is required to be deducted from the payment made or credited to the ‘supplier’ of taxable goods or services or both.
The above charging section clearly indicates that tax is required to be deducted from the payment made or credited to the supplier. Thus, the time of deduction would be the date on which payment is made or credited to the supplier. Accordingly, date of contract, date of supply or date of invoice is not relevant in determining the time of tax deduction. However, the date of invoice may be relevant from the perspective of implementation of TDS provisions from 01-10-2018.
Now let us understand what is meant by ‘payment made or credited to the supplier’.
2.1 Meaning of payment made or credited to the supplier
No specific definition or explanation has been provided in Section 51 in regard to expression ‘payment made or credited’. Thus, we shall examine the same in common legal parlance. ‘Payment made’ means payment is actually made in cash or by issue of a cheque or draft or electronic transfer of funds or other modes. Now we come to expression ‘credited’. Here we face dual interpretations one being it refers to payment credited in the bank account of the supplier and second being amount is credited to the ledger account of the supplier maintained in the books of accounts.
Comparision with provision under Income Tax Act
In order to demystify the above doubt, let us compare the provision of GST law with the TDS provision of Section 194C of the Income Tax Act, 1961 which is given below:
194C. (1) Any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to…………………
From above Section it is evident that under Income Tax Act, time of deduction of tax is at time of credit of sum to the account (ledger account) of the contractor or at the time of payment, whichever is earlier.
Credit means credit to Bank Account of supplier and not ledger account of Supplier
After going through the above provision of Income Tax Act, 1961 we can interpret that in case the term ‘credited’ referred to the credit of account of the contractor in the books, similar language as in Income Tax Act could have been used under Section 51. Further the term payment prefixes made or credited and therefore the word credited cannot be interpreted in isolation and same would mean payment credited.
Thus, on basis of above discussion, we can safely conclude that the term ‘credited’ means credit in Bank Account of the supplier and not credit in ledger account of supplier maintained in books of deductor for creating of liability.
Thus ‘payment made or credited to the supplier’ refers to the actual payment made by the deductor to the supplier and in case there is gap between payment made and actual credit in bank account of the supplier which would be normal in cases the payment is made by cheque, the earlier of two dates will be the time of deduction of tax at source.
It may also be noted the time of tax deduction cannot be after issue of cheque in view of the fact that cheque will be prepared only after passing and verification of invoice. Any tax that is required to be deducted will have to be deducted from the invoice at the time of bill passing and only after the bill is passed and necessary voucher is created, a cheque will be generated.
Further it may be noted here that in case of Government Departments / bodies / PSUs normally all the payments are now being made through electronic remittance as per CVC guidelines and accordingly there is no gap between date of remittance and date of credit in bank account of supplier and therefore date of payment made or payment credited is the same.
GSTR-7 also states that TDS is on payment made
The above understanding that under GST law, tax is to be deducted at time of payment and not at time of accrual / credit of amount to the ledger account of supplier is further corroborated by format of GSTR-7 viz Return for tax deducted at source. The table 3 of said form clearly ask for details of amount paid to deductee on which tax is deducted. The relevant part of GSTR-7 is given below for ready reference of the readers.
Let us apply the above understanding by way of some illustrations:
Illustration I:
A Department of Government entered into contract with a supplier of goods. The particulars are as under.
| Date of Contract | 01-08-2019 |
| Date of supply | 02-10-2019 |
| Date of Invoice | 02-10-2019 |
| Date of payment by Cheque | 10-11-2019 |
| Date of clearance of cheque and credit in Bank Account of supplier | 11-11-2019 |
In above case, the date of contract, date of supply, date of invoice will be disregarded as they are not the relevant dates for deriving the time of deduction of tax. We are left with two dates namely date of payment by cheque (10-11-2019) and date of credit of payment in Bank Account of supplier (11-11-2019). In such a situation as a deductor we can take the earlier of two dates as the time of deduction of tax which in this case will be 10-11-2019.
Illustration II:
A Public Sector Undertaking entered into contract with a supplier of goods. The particulars are as under.
| Date of Contract | 01-08-2019 |
| Date of supply | 02-10-2019 |
| Date of Invoice | 02-10-2019 |
| Date of creation of liability in books | 31-10-2019 |
| Date of electronic remittance and credit in Bank Account of supplier. | 10-12-2019 |
In above case, the date of contract, date of supply, date of invoice, date of creation of liability in books will be disregarded as they are not the relevant dates for deriving the time of deduction of tax. Accordingly, the time of deduction of tax which in this case will be 10-12-2019.
2.2 Time of tax deduction in case of advance payment
In case advance payment is made without receiving any supply, it shall still be subject to tax deduction as payment has actually been made or credited to the supplier. It is important to note here that Section 51 of the CGST Act, 2017 nowhere states that supply should have actually been received and merely states that deduction of tax would be required on payment or credit made to supplier of taxable goods or services. Further this view is also corroborated by para 3.1 (f) of SOP on TDS issued by GST Council.
Let us understand the above point by way of an illustration:
Illustration
A Department of Government entered into contract with a supplier of services. The particulars are as under.
| Date of Contract | 01-08-2019 |
| Date of advance payment | 05-10-2019 |
| Date of supply | 02-12-2019 |
| Date of Invoice | 12-12-2019 |
In this case as advance payment has been made on 05-10-2019, the time of deduction of tax on such advance payment will be 05-10-2019. It may be noted here that in case after supply some balance amount is paid, the same shall also be subject to deduction of tax on such balance payment and time of deduction would be the date on which such balance payment is made.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
