What is TDS in GST?
Tax Deducted at Source (TDS) is a method of collecting tax at the point of payment for taxable goods or services. The tax is deducted by the payer at a specific percentage of the payment amount and is remitted to the government. This collected tax forms part of the government’s revenue.[1]
The provisions regarding TDS under GST are outlined under Section 51 of the CGST Act, to be read with CGST Rule 66.[1]
Who is Responsible for Deducting TDS under GST?
[1]
As per the provisions, the following entities are required to deduct TDS under GST:
- Department of the Central Government or State Government or
- A Local Authority or
- Governmental Agencies or
- Any other persons or categories of persons as may be notified by the Government.
Per the Notification dated 13th September 2018, the following additional entities are also required to deduct TDS:1
- An authority, board, or any other body set up by Parliament or a State Legislature, or by the government, with at least 51% equity (control) owned by the government.
- A society established by the Central Government, any State Government, or a Local Authority, and registered under the Societies Registration Act, of 1860.
- Public Sector Undertakings.
TDS Rate in GST
[2]
Under the Goods and Services Tax (GST) framework in India, Tax Deducted at Source (TDS) must be deducted at a rate of 2% on payments made to the supplier of taxable goods and/or services by certain notified persons. This 2% is divided into 1% CGST and 1% SGST, or 2% IGST, depending on the nature of the transaction.
The TDS is applicable when the total value of the supply under a contract exceeds ₹2,50,000. Therefore, if the value of a single contract exceeds ₹2,50,000, TDS must be deducted.
Registration requirements for TDS deductors
[2]
Anyone who is liable to deduct TDS must obtain GST registration, irrespective of any threshold limit. This registration can be done using an existing Tax Deduction and Collection Account Number (TAN) issued under the Income Tax Act, even if the individual does not have a PAN. Therefore, TDS deductors must possess a TAN.
TDS certificate under GST
[2]
The party responsible for deducting TDS (the recipient of goods or services) must issue a TDS certificate to the party whose payment was reduced by the TDS amount (the supplier of goods or services). This certificate must be provided within five days of the tax being paid to the government.
Under GST law, the TDS certificate is issued using Form GSTR-7A. This form is automatically generated on the GST portal, based on the GSTR-7 return filed by the TDS deductor. Hence, timely filing of the GSTR-7 return by the deductor is crucial. Form GSTR-7A is available for both the supplier and the recipient.
Form GSTR-7A includes the following details:
- TDS certificate number
- The name and GSTIN of the TDS deductor (recipient)
- The GSTIN of the party whose tax was deducted (supplier)
- Value of the supply, TDS rate, and TDS amount
- The period during which the tax was deducted and paid to the government
- Other relevant details
This TDS certificate allows the government to verify the correctness of the deducted tax amount and ensures that the TDS amount reflected in the TDS return matches the amount shown in the electronic cash ledger.
The TDS return and certificate process under GST is similar to the Income Tax return and Form 26AS process in the direct tax system. Both systems help reconcile the amount of tax deducted at the source with the amount deposited with the government.
Penalties for Not Complying with TDS Provisions under GST
[1]
Scenario No
| Scenario
| Penalties
|
|---|
1
| TDS not deducted
| Interest must be paid at 18% along with the TDS. If not paid, the amount will be determined and recovered as per the provisions of the law.
|
2
| TDS certificate not issued or delayed beyond 5 days
| A late fee of ₹100 per day will be charged (subject to a maximum of ₹5000) under each Act.
|
3
| TDS deducted but not paid to the government or paid after the 10th of the following month
| Interest is to be paid at 18% along with the TDS, calculated from the day after the return filing deadline until the actual payment date. If not paid, the amount will be determined and recovered as per the law.
|
4
| Late filing of TDS return
| A late fee of ₹100 per day will be charged for each day of delay (subject to a maximum of ₹5000) under each Act.
|
How to Claim TDS Refund under GST
[2]
If excess tax has been deducted and paid to the government, a refund can be claimed, as this excess amount is not owed as tax. However, if the deducted amount has already been credited to the supplier's electronic cash ledger, the deductor cannot claim a refund. In such cases, the supplier (deductee) has the right to claim the refund, following the applicable legal refund provisions.
TDS under GST serves as a compliance and anti-evasion measure, governed by Section 51 of the Central Goods and Services Tax Act, 2017, and applies to specific categories of registered persons.
Deductors are required to deduct TDS at a rate of 2% on the value of taxable goods or services (excluding taxes) when the value exceeds ₹2.5 lakh in a financial year.[2]
FAQs
What is TDS under GST?
TDS is the 2% tax deduction at the point of payment for taxable goods and/or services and remitted to the government.1
Who is required to deduct TDS under GST?
Government departments, local authorities, government agencies, and other notified entities are required to deduct TDS.1
When is TDS applicable?
TDS is applicable if the value of a supply under a contract exceeds ₹2,50,000 to suppliers.3
Do TDS deductors need GST registration?
Yes, TDS deductors must obtain GST registration, regardless of their threshold limit.3
What is a TDS certificate under GST?
The TDS deductor issues a certificate to the supplier using Form GSTR-7A.4
What happens if TDS is not deducted?
Interest is charged at a rate of 1% per month, or any part of the month, calculated from the date the tax became deductible until the actual date of payment.5
Can a TDS refund be claimed?
Yes, if excess tax is deducted, the supplier can claim a refund if it’s credited to their electronic cash ledger.6
References:
- https://cleartax.in/s/tds-under-goods-and-service-tax
- https://tax2win.in/guide/tds-under-gst
- https://gst.kar.nic.in/Documents/FAQ/FAQsonTDS.pdf
- https://tutorial.gst.gov.in/userguide/returns/FAQs_GSTR7A.htm?rhsearch=3Brhhlterm=3b#:~:text=What%20is%20TDS%20Certificate%3F,in%20his%20Form%20GSTR%2D7.
- https://www.indiafilings.com/learn/penalty-for-late-filing-of-tds-return/#:~:text=Penalty%20for%20Non%2DDeduction%20of%20TDStext=Interest%20for%20Late%20Deduction%3A%20If,the%20actual%20date%20of%20deduction.
- https://cleartax.in/s/tds-refund#:~:text=If%20the%20actual%20tax%20payable,to%20give%20a%20TDS%20refund
An ISO 9001:2015 
