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MEANING OF VALUE UNDER A CONTRACT

HEMANTH RANKA (Tax & Financial Consultants) (360 Points)

01 May 2020

GST Law provisions mandate deduction of TDS by the specified entities on payment to a registered person registered under GST if the value of the contract exceeds Rs. 250000.00, there is no definition of value of contract in the law, so how to interpret it, if a person supplies services for raises bill of Rs. 100000.00 monthly then is he required to deducted TDS or not, individually the amount doest exceed Rs. 100000.00 but in aggregate during a financial year it exceeds Rs. 250000.00.

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25 Replies

RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 01 May 2020

Why not...?!

As per sec 51(1) of CGST act - the wordings of ""..... of taxable goods or services or both, where the total value of such supply, ***under a contract*** exceeds two lakh and fifty thousand rupees: ..."

***under a contract*** 👈 A contract means Single contract value exceeding 2.5lakhs then TDS should be deductible by the recipient of the such notified Taxpayers...

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HEMANTH RANKA (Tax & Financial Consultants) (360 Points)
Replied 01 May 2020

Sir, Thank you for your reply, I know that if the contract value exceeds Rs. 2.50 Lakhs then TDS needs to be deducted, but in our case there is no such formal contract, here we are raising bills on monthly basis and the individual amount does't exceed Rs. 2.50 lakhs, but when monthly bills put together for a whole year then the amount exceeds Rs. 2.50 lakhs, now whether TDS needs to be deducted or not.

Drafters of the above provision created unnecessary confusions in the minds of public, they could have simply wrote as if the aggregate payments exceed Rs. 2.50 lakhs in a year then TDS needs to be deducted instead of all this value of contract etc, even there is no proper explanation to that.

RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 01 May 2020

It's not as per IT act as aggregate value. It's as a contract...

Here You are not said what is Your supply to recipient...

Also without Contract (also mutual) how to You supply monthly wise...?

CA Altamush Zafar (GST Consultant) (15971 Points)
Replied 01 May 2020

If the recipient issues a separate service order for every month then no TDS required but if not then it will be difficult to prove that a contract do not exist where monthly service is being provided. Although in absence of contract or service order each invoice is considered as separate contract technically.

RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 01 May 2020

No... If suplied every month without ordering then not consider as monthly order. It's yearly contract of its not get documentary order as monthly.

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CA Altamush Zafar (GST Consultant) (15971 Points)
Replied 01 May 2020

Oral agreements are difficult to prove. The only documentary proof is invoice which is in itself can be considered as independent supply and independent. This is technical

However it is quite unlikely in practical business that services year long are being provided continuously without contract or service orders.

RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 01 May 2020

Technical thought can be accept other than govt...

CA Altamush Zafar (GST Consultant) (15971 Points)
Replied 01 May 2020

Technical thoughts can be argued and won in courts

RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 01 May 2020

Without orders can't get favourite judgment...

CA Altamush Zafar (GST Consultant) (15971 Points)
Replied 01 May 2020

Which orders?

The technical aspect is totally valid as per contract act

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RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 01 May 2020

Which orders?

From 1st query to last reply it's turned out...

TDS under GST is not applicable to all... The query is about TDS under GST. Not as per IT act.

CA Altamush Zafar (GST Consultant) (15971 Points)
Replied 01 May 2020

Yes its TDS under GST. TDS under IT act act is applicable as it will exceed the limit for the FY.

But in GST TDS it depends on the contract and if no contract is present then individual transactions are to be taken as independent contracts.

Individual service orders is a good practice as there is complete transparency. Continuous invoices without service orders or contract is not a good practice but technically as per contract act it is an independent contract.

Since oral contracts cannot be proved technically individual invoices will get considered as individual contracts.

And therefore GST TDS may not get mandatory on such transactions

RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 01 May 2020

Govt entities can't get supplies without giving orders or tenders...

- oral contract is not a contract...

Also it can be accept other than govt contracts... But Not into govt entities.

CA Altamush Zafar (GST Consultant) (15971 Points)
Replied 01 May 2020

Now you are shifting from technical aspect.

I already said practically services always provided against service orders or contracts.

But technically if such a situation exists where there is no contract or order, TDS may not get applicable for individual invoices if value does not exceed the limit individually.