TDS under GST- Registration, Applicability, Rates, and Penalties

The Income Tax Department of India initially put forth TDS (Tax Deduction at Source), and this follows a “pay taxes as you earn” tax collection mechanism. In this method, a specific percentage of the total amount is deducted by a recipient while paying the supplier of taxable goods and services. This helps the government prevent tax evasion and broadens the tax net.

The concept of TDS under GST was introduced according to notification No. 50/2018 – Central Tax dated 13th September 2018, and it came into practice on 1 October 2018. This provision is listed under Section 51 of the CGST Act. It is applied as part of CGST Rule No. 66. 

In this blog, we have covered all the information you need about TDS under GST, along with the rates, threshold, benefits, fines and penalties, and the refund mechanism. We have also covered the importance of using GST software solutions to automate the entire process.

 

What Is TDS Under GST?

As mentioned earlier, TDS was first introduced in the Income Tax Act and then extended to be covered in the GST Act as well. Having TDS under GST helps the government keep a trail of the transactions to track and validate compliance.

As per the Income Tax Act, the deductor must drop the same with the government and issue Form 16 and 16A as the TDS certificate to the deductee involved in the transaction. Similarly, in the GST Act, the tax deducted at source under GST must be deposited with the government on/before the 10th of the coming month through the portal gst.gov.in. In this case, the person who deducted the TDS must issue a TDS Certificate in Form GSTR 7A to the supplier whose TDS is being deducted. Yet, the TDS under GST follows a different conceptual framework when compared to the TDS in income tax. 

How To Deduct TDS on GST Bill -Example?

Registration of the Deductor

A person must register under Section 24 (vi) to be liable to deduct TDS. They must have a TAN (Tax Deduction and Collection Account Number) provisioned in accordance with the norms of the IT Act 1961. PAN (Permanent Account Number) is not required. Even though a person may be registered as a supplier, he/she must register as a deductor separately. 

TDS on GST Applicability Rates

TDS on GST bills must be drawn at the rate of 1% for the CGST and 1% for the SGST from the payment offered to the supplier. So, it will be a 2% TDS on GST rate on the total payments a person makes to the supplier of goods or services as per the contract.  

The TDS under GST applies when the total value of the supply evaluated under the individual contract exceeds a sum of Rs.2,50,000. It must be noted that the value of individual contracts must be taken into account and not the aggregate value accounted for in a month or year. 

The aggregate value of supply here means the entire taxable amount. The GST TDS rate must be calculated on the value achieved before computing the taxes, including CGST, SGST, IGST, UTGST, and cess under the GST. 

TDS under GST with Example

1. Ms. Bharathi signed two contracts to supply goods and services. 

a). The total value of goods in PO-1  is Rs. 1.5 lakhs

b). The aggregate value of services in PO-2 is Rs. 4 lakhs. Bharathi is in Kolkatta and supplies to Ram, who lives in the same area. 

For the Purchase Order (PO)- 1, the deductor is not required to deduct the TDS under GST as the aggregate value of goods and/or services in the contract is Rs. 1.5 lakhs which indeed is less than Rs. 2.5 lakhs.

But, in the Purchase Order (PO)- 2, the aggregate value of supply under the contract is Rs.4 lakhs which in turn is greater than Rs.2.5 lakhs. So, the GST TDS must be deducted. 

The following table summarizes the tax deducted at source under the GST bill of this contract. 

Aggregate value of services	Rs. 4,00,000
Add:
CGST – 9%	Rs. 36,000
SGST – 9%	Rs.36,000
Total	Rs. 72,000
TDS on GST component to be deducted at the rate of 2%
CGST at 1% of Rs. 4 lakhs	Rs. 4000
SGST at 1% of Rs. 4 lakhs	Rs. 4,000
Total TDS on GST amount (calculated on the aggregate value of services without accounting for taxes)	Rs. 8,000

c). In case Bharathi receives Rs. 1.5 lakhs on the 1st of January’23 and the remaining Rs. 2.5 lakhs on the 25th of February’23, what will be the TDS?

Even if part payment is made, the  GST TDS must be paid as the aggregate value of the contract is Rs. 4 lakhs which exceed the threshold value of Rs. 2.5 lakhs. 

2. Mr. Hanifa enters into a contract of Rs.1 lakh in value with a Public Sector Undertaking to offer advisory on income tax. He also enters into a contract of the value of Rs. 2 lakhs to offer advisory and consulting services on GST.  

In this case, the total value of the advisory services is Rs. 3 lakhs, and this is greater than the threshold rate of Rs.2.5 lakhs. But, the TDS under GST will not be applicable as the value of each of the contracts entered by Mr.Hanifa is lower than the threshold of Rs.2.5 lakhs. So, it must be noted that the TDS under GST is calculated on the aggregate value of a contract and not on the total value of services delivered or the invoice amount. 

Deposit of TDS

The TDS must be deposited by the deductor within the 10th of the following month. In case he/she fails to deposit to pay the TDS, they are required to pay interest.

Who Is Liable for Deducting TDS Under GST?

In accordance with Section 51 of the CGST Act 2017,  the following class of people registered under the GST law must deduct TDS under GST.

1. A department or establishment of the central government or state government
2. Local authority
3. Governmental agencies
4. Persons and categories notified by the government

The government has called out the following categories and persons as liable to be accounted for TDS under GST.

1. An authority or a board or any other body with 51% or more participation by way of equity or control and set up by 

• An act of Parliament 
• State legislature
• Established by any government

2. Society established by the central government or the state government, or a local authority under the Societies Registration Act of 1860 
3. Public sector undertakings

What Are the Rates and Thresholds for Tax Deducted at Source Under GST? 

As mentioned earlier, a 2% TDS is deducted from the GST bills, and it is calculated on the value of the goods or services offered without adding taxes. The TDS under GST is applied if the supply value evaluated under a single contract exceeds a threshold rate of Rs.2.5 lakhs. 

The supplier’s location, the place of supply, and the recipient’s place determine if the TDS on GST is to be deducted or not, and this can be assessed in the following circumstances. 

1. If the place of supply, place of recipient, and the location of the supplier are the same, then it would be treated as an intra-state transaction, and TDS shall be deducted on both the CGST and SGST. The supplier can claim the TDS credit in GST through the electronic cash ledger. 
2. If the place of supply is in a different state when considered against the recipient’s and supplier’s locations, then the TDS would be applied to the IGST (Integrated Goods and Services Tax). The supplier can claim the credit.  
3. If the supplier’s location and the place of supply are in the same state, but the recipient’s place is in a different state, then this would be considered an intra-state supply, and both the CGST and SGST would be applied. In this case, the transfer of TDS to the ledgers of the supplier may become difficult. So, in this case, the TDS need not be deducted from the total payment.

The following table summarizes the  GST TDS applicability based on the supplier’s, supply location, and recipient’s place. You must be well-versed in this to understand the nuances of the TDS on GST calculations. 

So, under two circumstances, TDS will not be deducted from the GST bills, and they are summarized as follows. 

• If the supplier and place of supply happen in a different state from the location of the recipient, then it is not required to deduct the TDS. 
• If the individual contract value is lesser than Rs. 2.5 lakhs. 

Though this may seem complex in the first instance, deploying GST software helps automate the calculation based on the location of supply and place of recipient. 

What Is the Last Date for TDS Payments? Who Should Be Paid?

The table below presents a summary of the TDS under GST based on the location of supply. 

The TDS amount should be deposited by the deductor within the 10th of the next month. It should be paid to 

• The central government, if it is covered under IGST and CGST. 
• The state government if it is covered under SGST. 

What Are the Provisions That Govern the Issuance of TDS Certificates Under the GST Act?

In the Income Tax Act, the person deducting the TDS on GST must issue TDS Certificate in Form 16 and Form 16A to the deductee. Akin to this, as per the GST Act, the deductor must issue a TDS Certificate in Form GSTR 7A to the supplier within 5 days post depositing the TDS amount with the government.

If the deductor takes more than 5 days to issue the TDS certificate, then he or she has to pay a late fee of Rs. 100 per day. The late fees should not go beyond Rs. 5,000. 

What Is the Benefit of TDS on GST to the Deductee (Supplier)?

When TDS is deducted, and the TDS certificate in Form GSTR 7A is issued, the deducted amount will be made available in Form 2A/4A of the deductee. The deductee can then pay his taxes using the amount in the electronic cash ledger.

Following are some of the key benefits of TDS on GST to the deductee. 

1. Ease of Compliance

TDS on the GST bills helps ensure compliance of the supplier as well as the recipient to the tax norms. As the deductor withholds the GST during payment, it offloads the burden off the supplier.  

2. Enhanced Tax Reconciliation

As mentioned earlier, the deducted TDS reflects on the electronic ledger of the supplier. The supplier can then use this to discharge his/her GST liabilities. This enhances the reconciliation process. 

3. Lower Cost of Compliance

As the deductor or the recipient is responsible for calculating and remitting the GST, it reduces the burden and cost of compliance for the supplier, who otherwise had to calculate the GST liabilities and remit the entire amount by themselves.

What Are the Penalties for Failing To Comply With TDS Provisions Under GST? 

If the GST TDS is not deducted, then the deductor must pay the interest in addition to the TDS amount. Else, the amount is usually evaluated and reclaimed as per the law. 

If the TDS certificate is not issued within the threshold of 5 days, then the deductor must pay a late fee of Rs.100 per day. On the other hand, if the TDS is deducted and not deposited to the government within the tenth of the succeeding month, then the interest must be paid along with the TDS amount. Else, the amount will be evaluated and reclaimed as per the law.

In GST TDS returns are filed late, then a late fee of Rs. 100 for every single day, subject to a maximum of five thousand rupees, is levied on the deductor. 

The following table shows a summarized picture of the penalties.

The best way to avoid delays in return filing and the following penalties is to use GST software, as such solutions help manage, track, and file GST returns. Regardless of size and scope, they have become a go-to mechanism for all businesses. 

How To Get TDS Refund Under GST?

In this section, we have covered, in detail, the GST TDS provisions for refunds. 

In case any excess amount is deducted and deposited to the government, the deductor/ deductee shall claim it as a refund under Section 54 of the CGST Act. It must be noted that if the amount has already been transferred to the electronic cash ledger of the deductee, then the deductor cannot ask for a refund under sub-section 8 of Section 51 of the CGST Act. 

On the deductee side, it is not imperative that the registered supplier must use the credited TDS amount in the electronic cash ledger for paying the tax liabilities. If there is any amount left in the ledger after paying the tax liabilities, it can be refunded as per sub-section 1 of section 54. 

Conclusion

Keeping track of the dates, calculating the returns, and filing the TDS under GST on time remains a complex process for small and medium-scale businesses. You may face hefty fines and penalties if you don’t pay the taxes on time and issue the TDS accordingly. Using GST software helps automate the process of calculating the returns and filing them accordingly within the prescribed time. Such solutions help reduce errors that may incur from the manual computation of the GST returns.