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TDS Under GST: What Taxpayers Should Know

Writer's picture: Dipali WaghmodeDipali Waghmode

Certain notified persons under GST must deduct TDS at 2% from payments made to the supplier of taxable goods and/or services. This article covers the TDS rate under GST, the deduction cap, applicability, forms to be submitted, interest and penalties that apply, and more.

 

Table of Content

 

What is TDS under GST?

One method of collecting taxes based on specific percentages of the amount owed by the recipient for goods or services is Tax Deducted at Source (TDS). The government receives revenue from the taxes collected. Section 51 of the CGST Act, as read with CGST Rule 66, contains the provisions relating to TDS under GST.


Who is Liable to Deduct TDS under GST?

The following are liable to deduct TDS under GST:

  • Central or State Government departments or establishments

  • Local authorities

  • Government agencies

  • Individuals or groups of individuals as the government may designate

According to the most recent notification, issued on September 13, 2018, the following organisations must also deduct TDS:

  • An authority, board, or other body established by the government, a state legislature, or Parliament that has 51 percent ownership (control).

  • A society founded by the federal government, a state government, or a local government is registered with the Societies Registration Act of 1860.

  • Projects in the public sector.


When and to whom should the TDS be paid?

Pay TDS within ten days after the month the tax is withheld and reported on Form GSTR-7. Make the payment to the relevant government, which entails:

  • Regarding the IGST and CGST, the Central Government

  • In the case of the SGST, the State government


Rate of TDS under GST

Under the Goods and Services Tax (GST) regime, certain notified persons must deduct Tax Deducted at Source (TDS) at the rate of 2% from payments they make to the supplier of taxable goods and/or services. It is divided into 2% IGST, 1% CGST, and 1% SGST. TDS is applicable when the total value of the supplies under a contract exceeds ₹2,50,000. It means that TDS deducts if the total value of a single contract exceeds ₹2,50,000.


How to Deduct TDS on GST Bill?

The following scenarios provide examples and explanations of TDS applicability:

Supplier location

Place of supply

GST type

Recipient location

Applicability of TDS

TDS %

Bangalore

Bangalore

CGST & SGST

Bangalore

Yes

2% (1% + 1%)

Bangalore

Chennai

IGST

Bangalore

Yes

2%

Bangalore

Chennai

IGST

Delhi

Yes

2%

Bangalore

Bangalore

CGST & SGST

Delhi

No


When billed, TDS under GST computes using the value specified in the contract. Consider the Karnataka railway department signing a contract worth RS. 4,000,000 with ABC, a supplier of anti-corrosion paints in the state. Anti-corrosion paints are subject to an applicable GST rate of 18%. Let's examine a situation:

  1. Value of contract: Rs. 4,00,000

  2. GST amount: Rs. 72,000 (18% of Rs. 4,00,000)

  3. The total invoice value is Rs. 4,00,000 + Rs. 72,000 =Rs. 4,72,000.

  4. Amount not including GST: Rs. 4,00,000 

  5. TDS computation: 2% of Rs. 4,00,000 = Rs. 8,000 

  6. CGST (1%): Rs. 4,000

  7. SGST (1%): Rs. 4,000

Rs. 8,000 is the TDS that needs to be withheld. Once TDS has been subtracted, ABC will receive the following sum:

The amount paid to ABC is Rs. 4,72,000 minus Rs. 8,000, or Rs. 4,64,000.


Interest for Delayed or Non-payment of TDS

The person in charge of deducting TDS under GST will be subject to interest at the rate of 18% per year on the amount that is unpaid or paid after the deadline if they do not send the tax to the government within 10 days of the end of the month in which the deduction was made. A minimum penalty of Rs 10,000 may be applied for non-deduction or short-deduction of TDS if not deducted when it should be or if the amount is less than needed. The following table describes the various scenarios related to the non-compliance to TDS under GST provisions and the corresponding penalties applicable.

Scenario

Penalties Applicable

TDS not deducted

In addition to TDS, interest at the rate of 18% must be paid. If not, the sum will be calculated and retrieved in accordance with the legal regulations.

TDS certificate not issued or delayed beyond 5 days

A daily late fee of Rs.100 will be charged (subject to a maximum limit of Rs.5000) under each Act.

TDS deducted but not paid to the government or TDS paid after the 10th of the following month

In addition to TDS, interest must be paid at the rate of 18%, which is computed from the day after the return filing deadline to the payment date. If not, the sum will be calculated and retrieved in accordance with the legal regulations.

Late filing of TDS return

A daily late fee of Rs.100 per day of delay is charged (subject to a maximum limit of Rs.5000) under each Act.


Registration Requirements for TDS Deductors

There is no upper limit on the mandatory registration requirement for anyone subject to TDS deduction. Without a PAN, GST registration can be obtained using the Tax Deduction and Collection Account Number (TAN) that was previously issued under the Income Tax Act. Therefore, it claims that TAN is required.


Exemption to the Applicability of TDS in GST

The only circumstance in which the GST law exempts TDS from application is when the supplier's and the supplier's place of supply differs from the recipient's place of registration. For instance, the supplier is in Rajasthan, and the supply is done to a person in Rajasthan upon the recipient's (in Gujarat) request. Transferring TDS, or the CGST and SGST of Rajasthan, to the supplier's cash ledger, or the CGST and SGST of Gujarat, would be challenging. Because of this, this transaction has been exempt from TDS under GST.


TDS Certificate under GST

A TDS certificate is given to the party whose payment was lowered by the TDS amount (the supplier of goods or services) by the party in charge of deducting TDS (the recipient of goods or services). After the tax has been paid to the government, this certificate needs to be issued within five days. This TDS certificate is issued using Form GSTR-7A by GST law. This form is generated on the GST portal based on the TDS deductor's GSTR-7 return. Consequently, the deductor must file the GSTR-7 return on time. Both the supplier and the recipient can access Form GSTR-7A.

The data on Form GSTR-7A includes the following:

  • The certificate number for TDS

  • The tax deductor's (recipient's) name and GSTIN

  • The GSTIN of the supplier whose tax withheld

  • The TDS amount, the TDS rate, and the supply value

  • The time frame in which taxes are collected and submitted to the government

  • Additional pertinent information

The TDS amount on the TDS return and the amount entered in the electronic cash ledger must match this TDS certificate for the government to verify that the tax amount deducted was accurate. The Income Tax return and Form 26AS procedure in the direct tax system is comparable to the TDS return and certificate procedure under the Goods and Services Tax system. The purpose of both systems is to balance the amount of taxes deposited with the government and the amount withheld at the source.


Claiming TDS Refund under GST

Refunds are possible if more tax is withheld and paid to the government than necessary because the excess is not tax owed. The deductor, however, is not eligible for a refund if the amount collected has already been credited to the supplier's electronic cash ledger. The applicable legal refund provisions still grant the supplier (deductee) a refund. TDS is a compliance and anti-evasion measure that applies to particular registered person categories and is governed by Section 51 of the Central Goods and Services Tax Act, 2017. When the value of supplied goods or services (excluding taxes) exceeds Rs. 2.5 lakh in a fiscal year, deductors must deduct TDS at a rate of 2%.


Latest Updates

According to the Finance Minister's announcement in the Union Budget 2024, TDS deductors must file a return under section 39 of the CGST Act each month, regardless of any deductions made during the month. An enabling clause that specifies the deadline for filing such returns must be included. A person registered under section 51 of the CGST Act only to deduct TDS is not registered for clause (f) of section 31(3) of the same Act. Therefore, the deductor does not have to send out a self-invoice. The CBIC has not yet advised of this.

The CBIC released CGST Notification No. 12/2024 on July 10, 2024, which modified the GSTR-7 return format for invoice-level reporting. The details of the invoice or document, the amount paid to the deductee responsible for TDS, the amount of TDS, the transaction value, and the IGST, CGST, and SGST are revealed by taxpayers.


Conclusion

Giving the recipient money after subtracting taxes is known as tax deduction at source. The idea of taxes is not new. However, it was only recently introduced in GST. The notified classes of people must now abide by the TDS regulations under the GST. We have clarified all relevant issues and provided a thorough grasp of TDS under GST to help taxpayers stay compliant.


FAQ

Q1. Is a person deducting TDS in GST required to be registered?

As per Section 24 of the CGST or SGST Act of 2017, a deductor, or person who deducts taxes, must be registered. The registration process is completed without any restrictions. Additionally, it can be taken even if the deductor does not have a PAN; in this scenario, TAN should meet the registration requirements.


Q2. Where does the deducted TDS reflect?

The deductee's electronic cash ledger shows the tax that was withheld at the source.  The sum can also be used as an Input Tax Credit (ITC) to pay taxes or other GST-related payments.


Q3. Is a separate GSTN allotted to a registered person for deducting TDS?

Indeed. Government agencies, public sector enterprises, etc., involved in commercial activity are required to register as "TAX DEDUCTORS."


Q4. How is TDS calculated on the GST bill?

First, determine the contract value excluding GST to compute TDS on a GST bill. TDS, excluding GST, should be subtracted from the payment amount at a rate of 2% if this amount surpasses Rs. 2,50,000. For instance, TDS is computed on Rs. 3,00,000 if the contract value is Rs. 3,00,000 and GST is RS. 54,000.


Q5. When should TDS be deducted under GST?

When the total value of supplies under a single contract surpasses RS. 2,50,000, TDS under GST must be subtracted. The deduction is made at the time of payment or, if earlier when the money is credited to the supplier's account. The tax is collected at the source of income.


Q6. What is the rate of TDS on GST?

TDS is imposed at a rate of 2% under GST. This 2% is divided between 1% Central GST (CGST) and 1% State GST (SGST). The integrated GST (IGST) rate for interstate supplies is 2%. This rate, which does not include GST, is applied to the amount owed to the supplier.


Q7. How to deposit TDS on GST?

The government must receive the deducted TDS by the tenth of the following month. You can use the GST portal to accomplish this. The deductor is required to submit Form GSTR-7, a TDS return form.  Using the electronic cash ledger on the GST portal, the amount withheld must be paid to the government.


Q8. What is Form GSTR-7?

Form GSTR-7 is a return that entities that deduct TDS under GST are required to file on a monthly basis. It contains information on the TDS paid, the TDS withheld, and any TDS liabilities that may be due. By the tenth of the subsequent month, the form must be turned in. Completing this form is essential to staying in compliance and avoiding fines.


Q9. Can suppliers claim TDS credit?

It is possible for suppliers to claim the TDS credit that is in their electronic cash ledger. They can use this credit to settle their output tax obligation. The TDS certificates issued by the deductor and the TDS credit displayed in the supplier's ledger must be reconciled.


Q10. What happens if TDS is not deducted?

The deductor may be subject to fines, interest, and other legal repercussions if TDS is not withheld as required. Financial losses and harm to the entity's reputation may arise from non-compliance. To prevent these problems, it is imperative that deductors follow the TDS regulations under GST. Efficient adherence to GST regulations is ensured by timely TDS deduction and deposit.






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