Section 51 of CGST Act, 2017 : Section 51: Tax Deductions At Source

Explanation using Example

Imagine a scenario where the Public Works Department (PWD) of a state government is undertaking a construction project and has entered into a contract with ABC Constructions for building a new bridge. The contract value is 10 million rupees. As per Section 51 of The Central Goods and Services Tax Act, 2017, since PWD is a government department and the contract value exceeds two lakh and fifty thousand rupees, PWD is required to deduct 1% tax from each payment made to ABC Constructions.

When PWD makes a payment of 2 million rupees to ABC Constructions, it must deduct 1% (i.e., 20,000 rupees) as tax and pay the remaining 1.98 million rupees to ABC Constructions. PWD then needs to deposit the deducted 20,000 rupees as tax to the government within ten days after the end of the month in which the deduction was made.

Furthermore, PWD must furnish a certificate to ABC Constructions detailing the contract value, rate of deduction, amount deducted, and amount paid to the government within five days of depositing the tax to the government. If PWD fails to issue this certificate on time, it would be liable to pay a late fee of 100 rupees per day until the certificate is provided, up to a maximum of 5,000 rupees.

ABC Constructions, on the other hand, can claim credit for the tax deducted by PWD in its electronic cash ledger and use this credit for its GST liabilities.

If PWD fails to deposit the deducted tax with the government, it will have to pay interest on the due amount as per section 50 of the Act, in addition to the tax amount.

In case of any excess or erroneous tax deduction, the refund process will be governed by section 54 of the Act, provided that ABC Constructions has not already credited the amount in its electronic cash ledger.