Tax Deducted at Source (TDS) under Goods and Services Tax

TDS under GST is required to be deducted at the rate of 2% on payments made to the supplier of taxable goods and/or services by certain notified persons under GST. In this article, we discuss all about TDS under GST, including the TDS rate under GST, the deduction limit, applicability, forms to be filed, interest and penalties applicable, and more.

What is TDS under GST?

Tax Deducted at Source (TDS) is one of the methods for collecting tax based on a certain percentage of the amount payable by the recipient for goods/services. The collected tax is a revenue for the government.

The provision about TDS under GST is specified under Section 51 of the CGST Act, to be read in conjunction with CGST Rule 66.

Who is liable to deduct TDS under the GST law?

• A department or an establishment of the Central Government or State Government; or
• Local authority; or
• Governmental agencies; or
• Such persons or categories of persons as may be notified by the Government.

As per the latest Notification dated 13th September 2018, the following entities also need to deduct TDS-

• An authority or a board or any other body which has been set up by Parliament or a State Legislature or by a government, with 51% equity ( control) owned by the government.
• A society established by the Central or any State Government or a Local Authority, and the society is registered under the Societies Registration Act, 1860.
• Public sector undertakings.

Liability to deduct TDS under GST and TDS rate

TDS is to be deducted at the rate of 2% on payments made to the supplier of taxable goods and/or services, where the total value of such supply, under an individual contract, exceeds Rs. 2,50,000. No deduction of tax is required when the location of the supplier and the place of supply are different from the state of registration of the recipient.

How to Deduct TDS on GST Bill Example?

Here are the scenarios explaining TDS applicability with examples:

TDS under GST is calculated on the value shown in the contract as and when it is billed. Take, for example, the railway department in Karnataka entering into a contract with XYZ, a supplier of anti-corrosion paints in Karnataka, worth INR 4,00,000. The applicable GST rate on anti-corrosion paints is 18%. Let's look into a scenario-

• Contract value: INR 4,00,000
• GST amount: 18% of INR 4,00,000 = INR 72,000
• Total invoice value: INR 4,00,000 + INR 72,000 = INR 4,72,000
• Amount excluding GST: INR 4,00,000
• TDS calculation: 2% of INR 4,00,000 = INR 8,000 
  • CGST (1%): INR 4,000
  • SGST (1%): INR 4,000

The TDS to be deducted is INR 8,000. XYZ shall receive the below amount after deducting TDS, as follows-

Payment to XYZ: INR 4,72,000 – INR 8,000 = INR 4,64,000

What are the registration requirements for TDS deductors?

A person who is liable to deduct TDS must compulsorily register, and there is no threshold limit for this registration. The registration under GST can be obtained without a PAN and by using the existing Tax Deduction and Collection Account Number (TAN) issued under the Income Tax Act. Thus, having TAN is mandatory.

When and to whom should the TDS be paid?

TDS shall be paid within 10 days from the end of the month in which tax is deducted and filed in Form GSTR-7. The payment shall be made to the appropriate government, which means:

• The Central Government, in the case of the IGST and the CGST
• The State government, in the case of the SGST

What are the provisions relating to the issue of TDS certificates under the GST law?

Similar to the Income Tax Law, the person deducting tax under GST must issue a TDS certificate in Form GSTR-7A to the concerned person within 5 days of depositing the tax to the government. The GST portal will automatically make GSTR-7A available to the deductee based on the GSTR-7 filed.

How will the value of supply on which TDS shall be deducted be considered?

For deduction of TDS, the value of supply is to be taken as the amount excluding the tax indicated on the invoice. This means that TDS shall not be deducted on the CGST, SGST, or IGST component of the invoice. 

For example, supplier A supplies B with a value of Rs. 5,000. The rate of GST is 18%. When B pays A, they will pay Rs. 5,000 (worth of supply) + Rs. 900 (GST) to A and Rs. 100 (Rs. 5000*2%) as TDS to the government. So TDS is not deducted on the tax element (GST) of a transaction.

Which form is required to file the TDS return?

The person deducting tax is required to file a TDS return in Form GSTR-7 within 10 days from the end of the month in which the tax was deducted. 

The CBIC released CGST Notification No. 12/2024, dated July 10, 2024, amending the format of the GSTR-7 return to allow invoice-level reporting. Taxpayers are required to report the invoice/document details, the amount paid to the deductee liable for TDS, the TDS amount, the value of the transaction, and IGST/CGST/SGST details.

*In the Union Budget 2024, the Finance Minister announced that TDS deductors are required to file a return every month under Section 39 of the CGST Act, irrespective of any deductions made during the month, and also to provide an enabling clause prescribing the time limit for filing such returns.

It was clarified that a person registered solely to deduct TDS under section 51 of the CGST Act should be treated as a person not registered for clause (f) of section 31(3) of the said act. So, the deductor is not required to issue a self-invoice.

*The same is yet to be notified by the CBIC.

What is the benefit of TDS to the deductee (Supplier)?

As stated above, there will be an automatic reflection in the electronic ledger of the deductee (supplier) once the deductor files their returns. The deductee can claim credit in their electronic cash ledger for this tax deducted and use it for payments of other taxes.

Penalties for not complying with TDS provisions under GST

The table below shows the penalties for not complying with GST TDS provisions:

How to get TDS Refund under GST?

Suppose any excess amount is deducted and paid to the government. In that case, a refund can be claimed, as this is not the tax amount to which the government is entitled. However, the deducted amount has already been added to the supplier's electronic cash ledger. In that case, it cannot be recovered as a refund by the deductor. Deductees can claim a refund of tax, subject to the refund provisions of the act, by navigating through the following steps:

1. Log in to the GST portal
2. Go to Services > Refunds > Application for Refund
3. Choose "Refund of excess balance in electronic cash ledger"
4. Select the tax head (e.g., TDS/TCS under IGST, CGST, SGST)
5. Submit with relevant supporting details (if any)
6. Track status via ARN

For more understanding, read a host of our articles by the team Clear:

• SOP on TDS under GST
• Tax Collected At Source ( TCS ) Under Goods and Services Tax
• TDS and TCS under GST: A complete overview of the concepts
• TDS and TCS credit received details 
• All about GSTR-7 for TDS deduction under GST