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Govt may introduce TDS for certain services under GST
November, 06th 2015

The government may be looking to introduce tax deducted at source (TDS) for certain services under the goods and services tax (GST)—a move that is likely to increase compliance requirements by companies, plug leakages and boost revenue collection.

Most states deduct TDS under value-added tax for some specific areas like work contracts to ensure that small suppliers are not able to evade taxes, but there is no such TDS for service tax at present.

In its draft report on the filing of tax returns under the GST made public on Tuesday, the government introduced a returns form for TDS deducted by purchasers at the time of payment to suppliers.

The report went on to add: “The GST law may contain a provision for TDS for supply of certain goods and/or services to specified categories of purchasers who will be obligated to deduct tax at a certain percentage from the payment due to the suppliers.”

But exactly which services are included will be clear only when the government makes the draft GST law public in the third week of November.

This is not the first attempt by the government to introduce TDS in service tax—the government had floated this idea in 2011, but shelved it after opposition from industry.

Analysts are apprehensive that this could increase compliance costs faced by companies.

“As far as goods are concerned, TDS provisions are already there—but only for works contracts. But it seems that the TDS provisions may be broad-based under GST and for certain services, there may be a TDS provision,” said Pratik Jain, partner at consultancy firm KPMG in India. “Compliance requirements will increase for companies. But the government will be able to increase its tax collections and plug leakages.”

Checking tax evasion under service tax has been a major problem confronting the Central Board of Excise and Customs (CBEC).

Even though CBEC introduced a negative-list based taxation of services, which ensured that all services except those mentioned in the list are levied service tax, the taxpayer base has not registered a big surge.

The levy of TDS will ensure that even the unorganized sector will come under the ambit of service tax as the organized sector firms will have to levy TDS on payments made for any service from small vendors.

“It seems that these provisions have been included in the GST law at the behest of the states. It is a nuisance. It will require increased compliance by companies as they will have to withhold the tax and fill many forms,” said R. Muralidharan, senior director, Deloitte India.

“Though, at present, TDS is deducted for VAT (value added tax) payments only in works contract cases, there was also some talk of e-commerce companies needing to deduct TDS for payments made to suppliers,” he said.

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