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

Tax deduction at source i.e. giving the receiver money after subtracting from it taxes has been an age-old concept. But, its inception in GST is quite recent. Now the notified classes of persons would be required to comply provisions of TDS under GST. In this blog, we will try to decode all related matters and get an in-depth understanding of the same.

What is TDS in GST?

BlogBlogTax Deduction at Source means when a payment is made to a person it is already adjusted for taxes. For eg. if payment of ? 5 lakh has been to, be made but, if the same is liable for TDS under GST, then net amount given to recipient would be ? 5 lakhs – 2%TDS = ? 4.9 lakhs.

How does it apply to GST?

Under the GST framework, notified deductors should deduct tax at rates specified before making payment for contacts exceeding ? 2.5 Lakhs

TDS under GST is governed by which Act – IGST, CGST or SGST?

GST law provides for tax deduction at source through all its governing statutes, namely

  • CGST or SGST Act, 2017 – Section 51
  • IGST Act, 2017 – Section 20
  • UTGST Act, 2017 – Section 21

When TDS on GST were made applicable in India?

TDS on GST was made applicable in India from 01.10.2018 vide Notification No. 50/2018 CT dated 13.09.2018.

What is the tax rate of TDS in GST?

The TDS needs to deducted under GST at following rates-

For Intra State Supply
  • CSGT @ 1%
  • SGST @ 1%
For Inter State Supply
  • IGST @ 2%

Who shall deduct TDS under GST?

Some notified categories of person are required to deduct TDS under GST. There are

  • Central and State Government
  • Local Authority
  • Government Agencies
  • A government society
  • Public Sector Undertaking
  • An authority or board

(set up by Parliament Act or State legislature or
established by Government)

Is there any threshold for deducting TDS in GST?

Yes, TDS needs to be deducted only if the amount involved in the transaction exceeds ? 2.5 Lakhs. The limit of ? 2.5 Lakhs is to be checked before adding taxes under GST.

Whether it applies to both Interstate or Intrastate supplies?

TDS provisions in GST apply to both

  • Interstate Supplies and,
  • Intrastate Supplies

Is there any exemption to the applicability of TDS in GST?

The only exception GST law provides for applicability of TDS in GST is when the location of supplier and place of supply is different from the place of registration of the recipient.
For eg: Supplier is located in Rajasthan and on the instruction of recipient (located in Gujarat) supply is made to a person in Rajasthan itself. In such case, it would be difficult to transfer TDS i.e. CGST and SGST of Rajasthan to cash ledger of supplier i.e. CGST and SGST of Gujarat. Hence, this transaction has been kept outside the purview of TDS under GST.

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

Yes, a deductor i.e person deducting tax needs to be compulsorily registered under section 24 of CGST or SGST Act, 2017. The registration has to be taken without any threshold limits. In addition to this, it can be taken even if the deductor does not have PAN, in this case, TAN should suffice the criteria of registration.

Where does the deducted TDS reflect?

The tax deducted at source reflects in Electronic Cash Ledger of deductee. The amount can further be used as ITC to pay taxes or make other payments under GST.

What is the time of issuing certificates?

The deductor must issue a certificate of such TDS deducted in GSTR 7A, within 5 days of deducting tax at source. Not complying with the same can attract

  • Fee ? 100 per day subject to the maximum of ? 5,000.

What is the time frame in which TDS should be deposited with Government?

The tax shall be deposited with government by the 10th day of the month succeeding the month in which such tax was deducted. Say, the tax was deducted in Jan then the same shall be deposited to the government till 10th of February.

What non-compliances of TDS provisions under GST result in?

There are penal provisions under GST in case of various non-compliances such as

TDS provisions

Is TDS a new concept or it was in existence way before GST?

Yes, the concept of TDS (Tax Deduction at source) was there in erstwhile VAT Laws.

Is TDS deductor required to file any GSTR?

Yes, TDS deductor is required to furnish GSTR 7 monthly.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.