The jurisdictional GST offices across India have begun receiving system-generated lists of contractors whose Tax Deducted at Source (TDS) under GST has been deducted. The data-driven scrutiny aims to identify cases where contractors delayed the declaration of outward supplies, leading to interest liability.
Understanding the Compliance Requirement
When TDS is deducted under GST, the contractor (supplier) must ensure that the corresponding outward supply is reported timely in GSTR-1 and GSTR-3B. Any mismatch between TDS deductions (reported in GSTR-7) and the contractor’s GSTR-1/GSTR-3B filings can trigger interest liability under Section 75(12) of the CGST Act.
Case Example: How Interest is Triggered
- April 2021: TDS deducted on an invoice value of ₹1 crore.
- July 2021: Contractor reports the outward supply in GSTR-1 and GSTR-3B.
- Result: The contractor is liable to pay interest for the delayed declaration of supply.
Legal Backing: No Time Limitation on Interest Demand
Under Section 75(12) of the CGST Act, interest on delayed tax payments is not subject to the time limitations of Sections 73 or 74. This means tax authorities can demand interest without being restricted by the usual three-year limitation period.
Advisory for Contractors & Suppliers
To avoid interest liability and scrutiny, contractors should:
Ensure that outward supplies are declared in GSTR-1 and GSTR-3B in the same period as reported in GSTR-7 by the deductor.
Regularly reconcile TDS deductions (GSTR-7) with GSTR-1 and GSTR-3B filings. Keep proper documentation to justify any genuine mismatches.
Exception: No Interest in Certain Advance Cases
If TDS is deducted on an advance received for goods (not for services or works contracts), and the actual supply of goods happens later, the contractor can justify the delay and interest shall not be applicable. However, proper documentation must be maintained to support such claims.
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