In what could bring the state governments’ adaptation to the goods and services tax (GST) into question, a few departments of the Rajasthan government have been deducting tax at source (TDS) from contractors, though this provision has remained suspended since the rollout of the new indirect tax regime in July last year.
In a letter written by the additional chief secretary of finance in Rajasthan to the heads of departments, it was pointed out that some drawing and disbursing officers (DDOs) had been deducting TDS, especially in case of works contracts. DDOs are officers authorised by the government to draw money from the government account and disburse the same for intended purposes. No bill for payment by or on behalf of the government can be drawn from the treasury without the signature of the DDO concerned.
“It is once again directed that presently, all eligible DDOs are only required to register themselves on the GSTN portal. Tax is not to be deducted by such DDOs till notification of the commencement date which shall be communicated in due course,” the letter said. Further, the head of departments were directed to advise a suitable mechanism to refund the amount deducted as TDS.
“Level of preparedness of taxpayers was in question till now, but even a BJP-ruled state seems to be struggling on an institutional level with the GST, so much so that tax deductions on account of the GST were made which were not even notified and there was no mechanism to deposit the same,” Rajat Mohan, partner, AMRG & Associates, said.
TDS is one of the methods to collect tax, under which certain percentage of amount is deducted by a recipient of supplies at the time of making payment to the supplier. It is similar to “pay as you earn” scheme, also known as withholding tax in many countries. The collected tax is revenue for the government.
In the earlier regime as well as in the GST, state and central departments are liable to deduct taxes for procuring goods and services under a contract exceeding Es 2.5 lakh.
However, the GST Council had suspended the provision of TDS and tax collected at source (TCS) to reduce compliance burden on taxpayers in early days of the GST. These provisions will remain suspended till June 30.
“GST commissioner of the state should levy some interest and a general penalty on all such DDOs who have deducted GST-TDS even though the same was not applicable,” Mohan said.