TDS under GST: Everything you need to know

Tax Deducted at Source (TDS) under Goods and Services Tax (GST) regulations, is a crucial mechanism designed to streamline tax collection. In this comprehensive blog, we will navigate through the intricacies of TDS under GST, exploring its key components, applicability, procedural aspects, and impact on businesses.

What is TDS under GST?

TDS under GST is governed by Section 51 of the CGST Act, and CGST Rule 66. Tax Deducted at Source (TDS) is a mechanism to collect tax by deducting a specific percentage from the amount payable for taxable goods and services. This deducted tax is then remitted to the government.

Who is liable to deduct TDS under GST?

Entities liable to deduct TDS under GST include various governmental bodies, departments, local authorities, and those specified by the Government. A notable expansion in September 2018 brought additional entities like authorities, boards, and bodies with majority government equity into the TDS net.

TDS Rate and Applicability

TDS is deducted at a rate of 2% when the total value of the supply under an individual contract exceeds Rs.2,50,000.

However, this deduction is not applicable if the supplier's location and place of supply differ from the recipient's registered State or Union territory.

Registration and Compliance

Entities liable to deduct TDS must register without a threshold limit. Registration under GST is mandatory and possessing a Tax Deduction and Collection Account Number (TAN) is a prerequisite.

TDS Payment and Forms:

TDS must be paid within 10 days from the end of the month in which tax is deducted. Form GSTR-7 is used for filing, with payments made to the appropriate government.

TDS Certificates and Value of Supply:

TDS certificates (Form GSTR-7A) must be issued within 5 days of depositing tax. The value of supply for TDS deduction is the amount excluding the tax indicated on the invoice.

TDS Return Filing:

Entities deducting tax must file TDS returns using Form GSTR-7 within 10 days from the end of the month in which tax was deducted.

Impact on Deductees and Penalties

Upon filing returns, there is an automatic reflection in the electronic ledger of the deductee. This enables them to claim credit for the tax deducted and use it for other tax payments.

Penalties for Non-Compliance:

Non-compliance with TDS provisions attracts penalties, including interest payments and late fees,

• In case the TDS is not deducted, an interest is to be paid @ 18% along with the TDS.
• If the TDS certificate has not been issued or delayed beyond 5 days, a late fee of Rs.100 per day will be charged (subject to a maximum of Rs.5000) under each Act.
• If the TDS is deducted but not paid to the government or paid after the 10th of the following month, interest is to be paid @ 18% along with the TDS, calculated beginning from the next day of the return filing deadline until the actual date of payment.
• The Late filing fee of a TDS return is Rs.100 per day of delay (subject to a maximum of Rs.5000) under each Act.

TDS Refund under GST

If an excess amount is deducted and paid to the government, a refund can be claimed. However, if the deducted amount is already added to the electronic cash ledger of the supplier, the deductor cannot claim a refund for that amount.