Bihar to levy 2% TDS on supplies of raw materials by MGNREGS vendors

Payments to suppliers of raw material for works under the rural job guarantee scheme MGNREGS in Bihar will henceforth be made only after two per cent TDS (tax deducted at source), in line with recent directions of the Ministry of Rural Development (MoRD) following detection of evasion of goods and service tax (GST) by vendors in Bihar, officials familiar with the matter said.

About a month back, the office of the principal accountant general office (audit) of Bihar had highlighted the anomaly, which, it said, enabled suppliers to suppress their turnover and evade GST. This prompted the state’s rural development department (RDD) to seek a clarification from the MoRD since as there was no provision of TDS on payments against material supplies in the MGNREGS software till recently.

MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme) is a central scheme that seeks to provide at least 100 days of employment in a year to the unskilled workers in rural areas. All payments against materials supplied and wages go directly into the bank accounts of beneficiaries.

“We got the approval from the MoRD recently. We have instructed all the field officers accordingly,” said Rahul Kumar, commissioner, MGNREGA, Bihar.

Kumar said field officers could not be blamed since there was no provision so far in the software of deducting TDS while making payments to suppliers.

A TDS @2% (1% each of state GST and central GST) is mandatory on payments to suppliers against bills of ₹2.50 lakh and above as per GST rules, but an audit team from the AG office, during a random check in Banka district a few months back, detected that programme officers had not cut any TDS during payments made to suppliers, who provided various materials like soil, stone chips, bricks and TMT bars for MGNREGS works.

Officials said the issue was also brought to the notice of the state commercial taxes department, which started making enquiries and detected tax losses. Now, all district magistrates have been instructed to provide details of payments to suppliers (empanelled with the districts under MGNREGS).

GST rates on materials are in different slabs, like 28% on cement, 18% on TMT bars, 5% on soil and 12% on bricks.

“Tax assessments are going on and we have taken action against many such vendors who have not paid GST in the last few years,” said an officer in the commercial taxes department.

Dr Pratima, commissioner and secretary, commercial taxes department, could not be reached for comment.

A senior commercial taxes officer said the department has been pursuing all such cases where there is mismatch in the returns filed by vendors as against payments made under material supplies. “In cases of mismatch, notices have been served. Where there is discrepancy, tax is being collected and other action taken,” he said.

The officer said the department has held awareness sessions with programme officers of MGNREGA to educate them about the rules pertaining to deduction of TDS while making payments against materials to suppliers.

Meanwhile, RDD has already asked all vendors/suppliers empanelled in districts ( 300 vendors on an average in each district) to provide their PAN numbers and GST numbers to the department so that all data could be uploaded on the software and deduction of TDS could be done smoothly.

“In the next three to four weeks, all data would be stored in the software. We have already given instructions for TDS from suppliers against payments as per rules after necessary changes were made in the software,” said another RDD official.