What is TDS under GST?
The concept of TDS is already well known. You may have heard of Tax Deduction at source (TDS) under Income Tax, but you may wonder what is TDS under Goods and Services tax (GST). Before we discuss what is TDS under GST.
Let us revisit the concept of Tax deduction at source (TDS).
Tax Deduction at Source (TDS) is a system where the tax liability by the recipient is paid in part of the goods or services at the time of making payment to the supplier.
Now, let us know about TDS under GST.
Under the GST regime we have three basic components of taxes- CGST, SGST and IGST.
As per the GST law, certain notified registered persons will be required to deduct these taxes while making payments to the registered supplier. In other words, TDS under GST shall be deducted and deposited with the Government by the payer and nothing has to be done by the payee in such case i.e., the person issuing invoice has nothing to do and the payer will do the TDS on the basis of invoice issued.
The provisions pertaining to TDS under GST is given under section 51 of the CGST act to be read with CGST rule 66.
Now the question is, who is liable to deduct TDS under GST? Following are the categories of person who will be required to do the TDS:
-
A department or an establishment of the Central Government, State government; or
-
Local authority; or
-
Governmental agencies; or
-
Such persons or category 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.
One may note that at present, only above categories of person are required to do the TDS. The TDS deductor category in GST is not as vast as it is in the Income Tax Act.
Section 51 of the CGST Act also states the liability and the rate at which the TDS is to be deducted. TDS is deducted at the rate of 2%- (1% SGST and CGST each or 2% IGST) 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.
Let us understand further when should TDS be deducted and in which situations TDS need not to be deducted, through the table below:
Location of Recipient |
Location of Supplier |
Place of Supply |
Applicability of TDS |
Tax |
Maharashtra |
Maharashtra |
Maharashtra |
Yes |
Maharashtra CGST and SGST. |
Gujarat |
Maharashtra |
Gujarat |
Yes |
IGST |
Gujarat |
Maharashtra |
Maharashtra |
Not Applicable. |
Maharashtra CGST and SGST. |
Gujarat |
Maharashtra |
Punjab |
Yes |
IGST |
Maharashtra |
Maharashtra |
Gujarat |
Yes |
IGST |
(Here we assume that the contract of supply exceeds the value of Rs. 2,50,000/-.)
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.
When and to whom should the TDS be paid?
TDS shall be paid within 10 days from the end of the month in which tax is deducted. The payment shall be made to the appropriate government which means:
-
The Central Government in case of the IGST and the CGST
-
The State government in 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. However, GST portal will automatically make GSTR-7A available to the deductee on the basis of GSTR-7 filed.
What are the consequences of non-compliances under TDS?
Sl. No. |
Event |
Consequence |
1. |
TDS not deducted |
As per Section 50(1) of the SGST/CGST Act, 2017, Interest to be paid along with the TDS amount; else the amount shall be determined and recovered as per the law |
2. |
TDS certificate not issued or delayed beyond the prescribed period of five days |
As per Section 51(4) of the SGST/CGST Act, 2017, late fee of Rs. 100/- per day subject to a maximum of Rs. 5000/ |
3. |
TDS deducted but not paid to the Government or paid later than 10th of the succeeding month |
As per Section 50(1) of the SGST/CGST Act, 2017, Interest to be paid along with the TDS amount; else the amount shall be determined and recovered as per the law |
4. |
Late filing of TDS returns |
As per Section 47 of the SGST/CGST Act, 2017, Late fee of Rs. 100/- for every day during which such failure continues, subject to a maximum amount of five thousand rupees |
