Tax Deducted At Source (TDS) Under GST – All You Need To Know

The Goods and Services Tax, commonly referred to as GST, is a unified system of indirect taxation that has brought several taxes, such as Excise Duty, Customs Duty, Service Tax and Value Added Tax (VAT) under one roof. However, the reformed GST regime has also categorized the country’s taxation system into three types, namely CGST (Central Goods and Services Tax), SGST (State Goods and Services Tax), and IGST (Integrated Goods and Services Tax), respectively. In this post, we will provide you a detailed overview of TDS Under Goods and Services Tax (GST) – All You Need To Know and also learn the procedure of carrying out TDS-related operations.

In accordance with the GST Act, certain registered persons and/or business entities may be required to deduct tax i.e. TDS, in case of making payments to their suppliers and the tax amount must be deposited into the accounts of the government of India. Such tax deposited will be treated as the government’s revenue.

What is Tax Deducted at Source (TDS) under GST?

Generally speaking, TDS (Tax Deducted at Source) is one of the approaches to acquire tax based totally on a certain percentage on the amount payable by the receiver to the supplier on the purchase of goods or services or both. The amassed tax is a revenue for the government.

TDS under GST is quite different from that of TDS under Income Tax. The provisions of GST TDS were made relevant from 1st October 2018 (Notification No. 50/2018 dated 13th September 2018). If a transaction is covered under both GST and Income Tax Act, then separate deductions might be made, separate returns and separate TDS certificates may be issued under the respective Acts.

Who are liable to deduct TDS under GST?

As per the regulations set by the GST law, the persons and/or business entities who are liable to deduct TDS are listed as follows:

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

In view of the notification dated 13th September 2018, the following entities are also required 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 using 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.

TDS provisions do not apply whilst transactions take place between persons laid out in category (a) to (e) stated above (third proviso of Notification No. 50/2018 – CT dated 13.09.2018, inserted on 31.12. 2018).

Local Authority consists of Panchayat, Municipilaty, Zila Parishad, District Board Regional Council etc.

Who is a deductor and deductee?

The recipient of goods and services who is liable to deduct Tax at Source (TDS) is called a deductor, while the supplier who supplies goods and services to the category of persons and entities mentioned above is called a deductee.

How does liability attract TDS deduction and at what rate?

TDS is to be deducted at the rate of 2 per cent on payments made to the supplier of taxable goods and/or services, wherein the total cost of such supply, under an individual contract, exceeds two lakh fifty thousand rupees. No deduction of tax is needed while the vicinity of the supply/dealer and place of supply is different from the state of the registration of the recipient.

What are the registration criteria that must be met by TDS deductors?

A person or business entity who is liable to deduct TDS is required to register, which is mandatory. However, there may not be a threshold limit for this. The registration under GST can be carried out without needing his/her PAN (Permanent Account Number) details, instead, by using the existing Tax Deduction and Collection Account Number (TAN) issued under the Income Tax Act. Thus, it can be stated that having one’s TAN details is mandatory.

When and to whom should the TDS be paid?

TDS is to be paid within 10 days from the end of the month wherein tax is deducted. The payment will be made to the appropriate government, which are:

  • The Central Government (in case of the IGST and the CGST)
  • The State Government (in case of the SGST)

What are the provisions for the issuance of TDS certificates under the GST law?

Similar to the Income Tax Law, the person or business entity who deducts tax is required to issue the TDS certificate in Form GSTR-7A to the concerned person within five day

s of depositing the tax to the government. Failure to achieve this will make the person liable to pay a late fee of Rs. 100 per day, up to a maximum of Rs. 5000.

How is the value of supply considered on which TDS is to be deducted?

For the purpose of deducting TDS, the value of supply is to be taken as the amount, except for the tax indicated on the invoice. This means that TDS shall not be deducted on the CGST, SGST or IGST factor of invoice.

For instance, Supplier A makes a supply well worth Rs. 5,000 to B. The rate of GST is 18%. When B will pay A, he/she will pay Rs. 5,000 (cost of supply) plus Rs. 900 as GST to A and Rs. 100 (i.e. Rs. 5,000 * 2%) as TDS to the government. So, it can be stated that TDS is not deducted on the tax element (GST) of a transaction.

Which form is needed to file TDS return?

The individual or business entity who is deducting tax on the supply of goods or services is required to file his/her TDS return via Form GSTR-7. It is important to note that the TDS return must be filed within 10 days from the end of the month. If the GSTIN (Goods and Services Tax Identification Number) of the unregistered supplier is not available, in that case, the supplier’s name may be mentioned along with other relevant details on Form GSTR-7.

The robustness of the system reflects the details provided in the electronic ledger of the supplier (deductee).

How does a deductee (supplier) benefit from TDS?

As it is already mentioned above, there will an automatic reflection in the electronic ledger of the deductee (supplier) as soon as the deductor files his/her returns. The deductee can claim credit in his/her electronic cash ledger of the tax deducted, also, which he/she can use it for the payment of other taxes.

How to obtain a refund on TDS under goods and services tax?

In case if any excess amount is deducted and paid to the government, reimbursement may be claimed as this is not the tax amount that the government has a right on. However, if the deducted amount is already recorded in the supplier’s (deductee) electronic cash ledger, then the amount that is added cannot be refunded by the deductor. The deductee can claim a refund of tax subject to the refund provisions of the act.

Compliances that must be followed by deductor

The deductor is required to comply with the regulations stated as under:

  • Such deductor is required to be compulsorily registered under Section 23.
  • Obtaining TAN issued under the Income Tax Act is mandatory.
  • He/she is required to remit such TDS accrued within the 10th day of the month succeeding the month in which TDS was accrued and filed in GSTR-7.
  • The amount deposited as TDS can be reflected within the electronic cash ledger of the supplier.
  • He/she is required to issue a certificate of such TDS to the deductee (supplier) within five days of deducting TDS mentioning therein the agreement value, rate of deduction, amount deducted, the amount paid to the appropriate Government and such details as may be prescribed.
  • Non-deduction/short deduction or non-payment/short payment of TDS is on offence under the Act, and for which a minimal penalty of Rs. 10,000 is prescribed under the Act.
  • Deductee (supplier) shall claim credit in the electronic cash ledger.
  • If the deductor fails to pay the TDS to the credit of the Government, then interest will be levied.
  • The determination of the amount in default shall be according to Section 66 or 67.
  • Refund of wrong deduction may be made in accordance with provisions applicable to refund specified in Section 48. No refund to deductor shall be granted if the amount deducted has been credited to the electronic cash ledger of the deductee.


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