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TDS on GST – Tax Deduction at Source on GST

tds on gst

Tax deducted at source is a form of income for the government, wherein the tax is collected from the very source of the income and not the end product. TDS is a mechanism that is used globally to collect taxes by the governing body. Any payment that is made under the TDS provision is paid only after deducting the tax on it. 

Since the incorporation of Goods and Service Tax in India, the governing body also introduced TDS for all the sellers and registered entities on the GST portal. TDS on GST is given under section 51 of the GST provision of the CGST Act

What is TDS under GST? 

Any business entity or individual registered under the GST portal and conducting business over a specific sum are required to pay TDS. Entities that make contractual payments to the supplier where the total contract value exceeds INR 2.5 Lakhs shall deduct 2% of the total payment towards the TDS provision on GST. 

The 2% TDS is divided in such a way that 1% goes to CGST and 1% to SGST, which are the central and state governing GST bodies. In the case of inter-state transactions, wherein the GST paid comes under IGST, the entire sum of 2% goes towards IGST. 

Which parties and entities are liable to pay TDS under the GST rule? 

As mentioned above, TDS is a part of section 51 under the GST regime and provisions of the CGST Act, 2017. Hence, as mentioned in the section, the following entities are liable to pay TDS: 

  • A department or establishment of the Central Government or State Government 
  • A local authority 
  • Government Agencies 
  • Such persons or category of persons as may be notified by the government 

What is the TDS percentage number? 1% or 2%? 

While an entity is paying a percentage of its total contract value towards TDS, the total percentage value is 2%. However, in the case when taxes are paid to CGST and SGST, the 2% TDS is also divided in such a format that 1% is paid towards CGST and the other 1% is paid towards SGST. 

In the situation when the supply contract is between inter-states, the entire 2% TDS is paid only to IGST. 

For example, Abhijeet and Traders supply goods worth INR 5 lakhs within the state of Maharashtra. The total TDS deducted on these transactions would be 2% of INR 5 lakhs = INR 10,000. This would then be divided by
CGST = INR 5,000
SGST = INR 5,000

On the other hand, if Abhijeet and Traders supply goods within a few states for a particular contract such as Maharashtra and Karnataka, the TDS amount remains the same at 2% of the total contract value which is INR 10,000. But the entire sum is paid towards IGST.
IGST = INR 10,000

If the location of the supplier and the state of the supply is different from the state of the registration, the filing of TDS is not required. 

For example, if a supplier based and registered in the state of Rajasthan supplies goods from the state of Rajasthan to another recipient who then supplies to the state of Maharashtra, TDS is not required. 

However, if the supplier directly sends goods from the state of Rajasthan to the recipient in the state of Maharashtra, TDS if required and will be filed under IGST. 

Reason for introducing TDS on GST 

TDS is an act that is adopted globally by most countries. In India, TDS is also a part of Income Tax and thus was natural to introduce TDS on GST too. 

The main idea about TDS is the prevention of tax evasion and manipulation of books of accounts. Since TDS is a form of Advance Tax that is already paid, it provides for the creation of transparent books of accounts. 

What are the requirements for TDS payments? 

Only entities or individuals who are registered on the GST portal come under the purview of paying TDS. Since the entity is already registered on the GST portal, they would have a TAN (Tax Deduction and Collection Account Number) given to them. The TAN number is mandatory for the filing of TDS. 

Another requirement is that the total value of the supply of goods under an individual contract should exceed INR 2.5 lakhs for the entity to pay TDS. 

When does one need to file for TDS and what forms need to be filled? 

Every business entity or registered individuals on the GST portal that are eligible to pay TDs are required to file their TDS return by the 10th of the next month. GSTR form 7 needs to be filled for the same on the GST portal. 

If the TDS that is to be paid is not paid within the time limits mentioned, the deductor would be charged with an interest fine for the same. 

TDS Certificate 

A TDS certificate is required to be issued to the deductor in the form of GSTR 7A and present it to the deductee within 5 days of crediting the amount of the government. If the deductor fails to present the certificate, a fine of INR 100 would be charged per day for the delay of the same, but the fine is capped at INR 5000. 

What can you do as a seller to ensure your TDS reimbursements are done on time without any hassle?

  1. Make sure to keep a copy of all your bills at all times, whether the amount is big or small. 
  2. In case you aren’t sure about TDS or the final amount, sign up for a cloud accounting software system or consult the matter with your tax advisor. 
  3. Ensure you are ahead in submitting all the TDS forms along with the details that need to be mentioned on the firms. 
  4. Pay the TDS to the government on time and in an accurate format so you can receive the TDS certificate and don’t have to pay any additional fine or interest. 
  5. If an online portal delays the payment, don’t give up and make sure to receive your money. Get in touch with some higher authorities or the GST support on the portal to ensure your TDS return is received on time. 

Frequently Asked Questions (FAQs) about TDS 

  1. What is the TDS percentage that needs to be paid?
    The total percentage value that needs to be paid on a supply contract in the form of TDS is 2%. It is then divided as CGST and SGST or completely as IGST only.

  2. What is the value on which TDS needs to be deducted on?
    The total value on the bill or contract supply apart from CGST, SGST or IGST needs to be the value on which TDS is calculated on.

  3. If the location of the supplier and the place of supply is different from the state of the recipient, does TDS need to be paid?
    No. In case of registered state and supply state being different from recipient state, then no TDS needs to be paid.

  4. What is the threshold limit over which the TDS needs to be charged?
    As per the latest government guidelines and section 51 of the CGST Act, 2017, any individual supply contract that has exceeded an amount of INR 2.5 lakhs would be required to pay TDS. 

  5. How can one claim a refund of TDS under GST?
    In case you have paid an excess amount under TDS, and your taxable portion is not as much, one can claim a refund for the TDS. But, if the deducted amount is already added to the electronic cash ledger of the supplier, claiming a refund on TDS is not possible.

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