TDS under GST is a mechanism provided under the Goods and Services tax (GST) law to collect tax at source from certain specified entities. It’s a vital provision that helps in increasing revenue and tax compliance collection for the government. This article will discuss TDS under the GST regime, its applicability, procedures & consequences for businesses.
What is TDS under GST?
TDS under GST legislation is a provision which requires particular individuals (deductors) to deduct a specific portion of GST from the payment to their suppliers of services or goods. The tax is returned to the government as being a source of income. This particular mechanism is provided in Section 51 of the Central Goods & Services Tax (CGST) Act and CGST Rule 66.
Who is liable to deduct TDS under GST law?
The liability to deduct TDS under GST extends to the following entities:
- Departments or establishments of the Central Government or State Governments.
- Local authorities.
- Governmental agencies.
- Authorities, boards, or other bodies created by Parliament, State Legislatures, or the government with 51% or greater contral equity (control).
- Societies established by the Central or State Government or a Local Authority and incorporated under the Societies Registration Act of 1860.
- Public sector undertakings.
- Others or categories of people notified by the authorities.
GST TDS Applicability
TDS under GST applies where the total value of taxable services or goods supplied under a contract exceeds Rs. 2,50,000. The deductor will deduct TDS at the rate of 2% from the payment to the supplier (minus GST component).
TDS on GST rate
The TDS on GST rate is 2% of the supply value excluding GST quantity. That means in case the supply under a contract is worth much more than Rs. 2,50,000, the deductor should deduct 2% (excluding the GST component) as TDS.
Registration Requirements for TDS Deductors
Entities liable to deduct TDS under GST must also register under the GST regime – regardless of threshold limit. The registration may be obtained without a PAN using the current Tax Deduction and Collection Account Number (TAN) issued under the Income Tax Act. TDS deductors need to have a TAN under GST.
Payment and Filing of TDS Returns
The deducted TDS sum should be given to the proper government within ten days of the month the tax was assessed. The payment is provided the Central Government for the Integrated Services and Goods Tax along with Central Goods and Services Tax and also to the State Government for the State Goods and Services Tax respectively.
The deductor should file a TDS return in Form GSTR 7 within ten days of the end of the month which the tax was deposited.
Benefits of TDS to the Deductee (Supplier)
The TDS mechanism also benefits the deductee (supplier). The electronic ledger of the deductee will reflect an automatic reflection once the deductor files the TDS returns. The deductee may claim credit in their electronic cash ledger for that tax and use it to pay other taxes.
Penalties for Non-Compliance With TDS Provisions.
Compliance with TDS provisions under GST might result in penalties and interest as per below:
- In the absence of TDS, interest at 18% is going to be payable on top of the TDS amount or the amount will be decided and recovered under the law.
- When the TDS certificate isn’t issued or postponed beyond five days, the late fee of Rs. 100 per day and up to Rs. 5,001 under each Act.
- If the deducted TDS isn’t given to the government or even paid out following the 10th of the next month, interest of 18% is going to be due combined with the TDS amount from the following morning of the return filing deadline till the particular day of payment. Otherwise the total amount is going to be decided and recouped under the law.
- When the TDS return is submitted late, the late fee of Rs. 100 per day delay up to Rs. 5,001 under each Act.
Excess TDS Refund under GST
Wherever excess TDS happens to be deducted and given to the government, the deductor has the right to a refund since this particular total isn’t a government expense. But the deductor can’t claim a refund in case the deducted amount has already been inserted in the electronic money ledger of the supplier. In such instances the deductee (supplier) can claim a refund of the tax under the GST Act refund provisions.
Conclusion
TDS under GST is a major measure to enhance tax compliance and bring down revenue collection by the authorities. With tax deduction at source the GST regime aims at a transparent and robust taxation regime. Both deductors and deductees (suppliers) must observe the TDS provisions regarding registration, payment, deduction, return filing and certificates. Any infringements of these requirements can result in fines and interest. Businesses must keep updated with the most recent regulations and take expert assistance to comprehend TDS under GST.
FAQs
1. What is TDS under GST and who is responsible to pay it?
TDS (Tax Deducted for Source) under GST is a mechanism under which certain specific entities (deductors) need to deduct a percentage of the GST from the transaction to their suppliers of services or goods. The tax collected is sent to the government as revenue.
Entities liable to deduct TDS under GST law are:
- Departments or establishments of the Central Government or State Governments.
- The Local authorities.
- Governmental agencies.
- Authorities, boards or other bodies created by Parliament, State Legislatures or the government with 51% or greater government equity.
- Societies established by the Central or State Government or a Local Authority and incorporated under the Societies Registration Act of 1860.
- Public sector undertakings.
- Any other individuals or categories of people notified by the government.
2. How does TDS work for GST transactions?
The deductor is required to deduct TDS in the specified rate from the payment to the supplier of services or goods (GST component excluded). The deducted TDS sum is then paid to the proper government (Central for IGST and CGST & State for SGST) within ten days of the month in which tax was put in.
The deductor issues a TDS certificate (Form GSTR 7A) to the supplier within five days of depositing the TDS with the government. The deductee (supplier) can credit the deducted TDS in their electronic cash ledger for other taxes.
3. What are the rates and thresholds for TDS deduction under GST?
The TDS rate under GST is 2% on the supply value minus the GST element. TDS is levied where the total taxable services or goods delivered under a contract exceeds Rs. 2,50,000.
4. How do I file TDS returns for GST?
The deductor should file a TDS return in Form GSTR 7 within ten days of the end of the month which the tax was deposited. The steps are the following :
- Add TDS at 2% to the payment on the supplier (minus GST part).
- Pay the deducted TDS sum to the proper government within ten days from the conclusion of the month.
- Issue TDS certificate (Form GSTR 7A) to supplier within five days of TDS deposit.
- File TDS return (Form GSTR 7) within ten days of the end of the month for which tax was deposited.
5. What are the consequences for not complying with GST TDS regulations?
Delays in issuing TDS certificates or filing TDS returns can attract late fees starting from Rs. 100 a day up to Rs. 5,001 under each Act. In case the deducted TDS isn’t given to the government or is paid out following the due date, interest at 18% is going to be charged on top of the TDS amount. Strict penalties and interest provisions are in place to meet the TDS rules under GST.
