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Tax deduction at source, i.e., giving the receiver money after deducting tax from it. Taxes have been an age-old concept. But, its inception in GST is quite recent. Now, the notified classes of persons are required to comply with provisions of TDS under GST. In this blog, we will try to decode all related matters and get an in-depth understanding of TDS under GST.
Tax Deducted at Source (TDS) under GST requires the recipient of certain goods or services to deduct a portion of the payment as tax and remit it to the government. GST law specifies who must deduct TDS, the applicable tax rate, and the payment procedure.
TDS (Tax Deducted at Source) is required on transactions where the total value of goods or services received under a single contract exceeds Rs 2,50,000. This applies even if individual goods or services within the contract are valued at less than Rs 2,50,000.
When calculating the TDS amount, exclude any CGST, SGST, IGST, or cess components from the total supply value. This ensures that TDS is not deducted from the tax component itself, aligning with the GST principle of avoiding tax on tax.
Under the Goods and Services Tax (GST) regime in India, Tax Deducted at Source (TDS) 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. This 2% is split into 1% CGST and 1% SGST or 2% IGST.
The TDS is applicable when the total value of supply under a contract exceeds ₹2,50,000. This means that if the value of a single contract is more than ₹2,50,000, TDS must be deducted.
If the person responsible for deducting TDS under GST fails to remit the deducted tax to the government within 10 days of the end of the month in which the deduction was made, they will be liable to pay interest at a rate of 18% per annum on the unpaid or late-paid amount.
If TDS is not deducted when it was required to be deducted, or if the amount deducted is less than the required amount, a minimum penalty of Rs 10,000 can be imposed for such non-deduction or short-deduction of TDS.
The following entities are required to deduct TDS under GST before paying suppliers:
However, TDS deduction is not required for:
Entities required to deduct TDS must have a Tax Deduction and Collection Account Number (TAN) issued under the Income Tax Act and must also be registered under GST, regardless of their turnover. They can obtain GST registration even without a PAN.
Anyone liable to deduct TDS is required to register, regardless of any threshold limit. This GST registration can be obtained using an existing Tax Deduction and Collection Account Number (TAN) issued under the Income Tax Act, even without a PAN. Therefore, possessing a TAN is mandatory for TDS deductors.
The only exception GST law provides for the applicability of TDS in GST is when the location of the 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 the recipient (located in Gujarat), the supply is made to a person in Rajasthan itself. In such a case, it would be difficult to transfer TDS, i.e., CGST and SGST of Rajasthan, to the cash ledger of the supplier, i.e., CGST and SGST of Gujarat. Hence, this transaction has been kept outside the purview of TDS under GST.
The party responsible for deducting TDS (the recipient of goods or services) must provide a TDS certificate to the party whose payment was reduced by the TDS amount (the supplier of goods or services). This certificate must be issued within five days of the tax being paid to the government.
Under GST law, this TDS certificate is issued using Form GSTR-7A. This form is automatically generated on the GST portal based on the GSTR-7 return filed by the TDS deductor. Therefore, timely filing of the GSTR-7 return by the deductor is essential. Form GSTR-7A is accessible to both the supplier and the recipient.
Form GSTR-7A contains the following information:
This TDS certificate allows the government to verify the accuracy of the deducted tax amount and ensure that the TDS amount shown in the TDS return matches the amount reflected in the electronic cash ledger.
The TDS return and certificate process under the Goods and Services Tax system is analogous to the Income Tax return and Form 26AS process in the direct tax system. Both systems serve to reconcile the amount of tax deducted at source with the amount deposited with the government.
The tax shall be deposited with the government by the 10th day of the month succeeding the month in which such tax was deducted. Say, the tax was deducted in January, then the same shall be deposited to the government till the 10th of February.
There are penal provisions under GST in case of various non-compliances, such as:
If more tax than required is deducted and paid to the government, a refund can be claimed, as this excess is not owed as tax. However, if the deducted amount has already been credited to the supplier's electronic cash ledger, the deductor cannot obtain a refund. In this case, the supplier (deductee) retains the right to claim a refund according to the applicable legal refund provisions.
TDS under GST is a compliance and anti-evasion measure governed by Section 51 of the Central Goods and Services Tax Act, 2017, and applies to specified categories of registered persons.
Deductors are required to deduct TDS at a rate of 2% on the value of supplied goods or services (excluding taxes) when the value exceeds ₹2.5 lakh in a financial year.
Contact us if you need more clarity on TDS under GST.
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
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.
The tax deducted at the source is reflected in the deductee's electronic cash ledger. The amount can further be used as ITC to pay taxes or make other payments under GST.
