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

By Annapoorna

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Updated on: Apr 4th, 2023

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3 min read

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 ways to collect tax based on certain percentages on the amount payable by the receiver on goods/services. The collected tax is a revenue for the government.

The provision pertaining to TDS under GST is given under Section 51 of the CGST Act to be read with CGST Rule 66.

Who is liable to deduct TDS under 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 supplier and place of supply is different from the State of the registration of the recipient.

Here are the scenarios explaining TDS applicability:

ScenarioLocation of supplierplace of supplyType of GSTPlace of recipientTDS applicabilityTDS %
1BangaloreBangaloreCGST & SGSTBangaloreYes2% (1% + 1%)
2BangaloreChennaiIGSTBangaloreYes2%
3BangaloreChennaiIGSTDelhiYes2%
4BangaloreBangaloreCGST & SGSTDelhiNo

What are the registration requirements for TDS deductors?

A person who is liable to deduct TDS has to compulsorily register and there is no threshold limit for this. 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 it can be said having TAN is mandatory.

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 has to issue the 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 on the basis of the GSTR-7 filed.

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

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

For example, supplier A makes a supply worth Rs.5,000 to B. The rate of GST is 18%. When B pays A, he/she 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 it can be said that 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 has been deducted. 

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 his/her returns. The deductee can claim credit in their electronic cash ledger of this tax deducted and use it for payments of other taxes.

Penalties for not complying with TDS provisions under GST

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

Scenario NoScenarioPenalties
1TDS not deductedInterest is to be paid @ 18% along with the TDS. Otherwise, the amount shall be determined and recovered as per the provisions of the law.
2TDS certificate has not been issued or delayed beyond 5 daysA late fee of Rs.100 per day will be charged (subject to a maximum of Rs.5000) under each Act.
3TDS is deducted but not paid to the government or paid after the 10th of the following monthInterest is to be paid @ 18% along with the TDS, calculated beginning from the next day of the return filing deadline until the actual date of payment. Otherwise, the amount shall be determined and recovered as per the provisions of the law.
4Late filing of TDS returnA late fee of Rs.100 per each day of delay will be charged (subject to a maximum of Rs.5000) under each Act.

How to get TDS Refund under GST?

If any excess amount is deducted and paid to the government, a refund can be claimed as this is not the tax amount that the government has a right on. However, if the deducted amount is already added to the electronic cash ledger of the supplier, the amount so added cannot be got back as a refund by the deductor. Deductee can claim a refund of tax subject to refund provisions of the act.

For more understanding, read a host of our articles by ClearTax:
 

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About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more

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