Tax Deducted at Source (TDS) under Goods and Service Tax

5paisa Research Team Date: 04 Apr, 2024 06:11 PM IST

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Tax Deducted at Source under GST

TDS under GST is required at a rate of 2% on payments to suppliers of taxable goods and services by specified individuals according to GST regulations. This article provides a comprehensive coverage of TDS under GST along with an exploration and thorough understanding of related topics.

What is TDS Under GST?

TDS under GST involves deducting tax at the source by the recipient of goods or services. This deducted tax serves as an advance payment towards the supplier's GST liability.

TDS system under GST applies to specific categories of registered individuals and is regulated by Section 51 of the Central Goods and Services Tax Act, 2017.

To comply with TDS regulations, deductor needs to obtain GST registration and regularly file TDS returns. These returns should include details such as the deducted tax, payment to the supplier and supplier's GSTIN. Additionally, the deductor must provide a TDS certificate to the supplier as evidence of the tax deduction.

Eligiblility for TDS Under GST

TDS under GST applies to a specific group called deductors which usually includes government departments, public sector companies and local authorities.

Deductors must deduct TDS at a 2% rate on the value of goods or services supplied excluding taxes if the total exceeds ₹2.5 lakhs in a financial year.

Some eligible categories for TDS deduction under GST include:

    • State Government departments or Central 
    • Government agencies
    • Local Authorities
    • Statutory bodies
    • Public sector companies

Liability to deduct TDS under GST and TDS rate

TDS or Tax Deducted at Source is applicable at a rate of 2% on payments made to suppliers of taxable goods and services when the total value of the supply under an individual contract exceeds ₹2,50,000. However, there's an exception if the supplier's location and place of supply are different from the state where the recipient is registered, no tax deduction is required.

Below is a table presenting the scenarios explaining TDS applicability 

Parameters

Interstate Supplies

Intrastate Supplies

Type of GST

Place of Recipient

TDS Applicability

TDS %

1

Bangalore

Bangalore

CGST & SGST

Bangalore

Yes

2%

2

Bangalore

Chennai

IGST

Bangalore

Yes

2%

3

Bangalore

Chennai

IGST

Delhi

Yes

2%

4

Bangalore

Bangalore

CGST & SGST

Delhi

No

-

Procedure for TDS under GST

Here's how TDS works within the GST system

Step 1: Registration

Any entity functioning as a deductor must ensure they are registered under the Goods and Services Tax or GST regime if they meet the registration threshold criteria.

Step 2: Deductions

Deductor is mandated to deduct TDS at a rate of 2% from the value of the supplied goods or services exclusive of taxes provided the total value of such supplies exceeds ₹ 2.5 lakhs within a financial year.

Step 3: Deposit

After the deduction, deductor is obligated to deposit the TDS amount to the government within 10 days from the conclusion of the month in which the deduction was executed.

Step 4: Furnishing of TDS Certificate

Deductor is further required to furnish a TDS certificate to the supplier detailing the deducted TDS amount the payment made to the supplier and the sum deposited with the government.

Step 5: Claiming Credit

Supplier holds the right to claim credit for the TDS amount deducted by the deductor by presenting the TDS certificate to the competent officer while filing their monthly return.

By adhering to these steps both deductors and suppliers ensure compliance with TDS regulations under the GST framework fostering transparency and accountability in the taxation process.
 

Penalties for not complying with TDS provisions under GST

Below is a summary of the penalties associated with non compliance with GST TDS provisions

Scenario No

Scenario

Penalties

1

TDS not deducted

Interest must be paid at a rate of 18% along with the TDS. Failure to comply will result in the amount being determined and recovered according to legal provisions.

2

TDS certificates has either not been issued or has been delayed beyond a period of 5 days.

A late fee of ₹100 per day will be imposed with a maximum limit of ₹5000 applicable under each relevant Act.

3

TDS is deducted but remains unpaid to the government or is paid after the 10th day of the subsequent month.

Interest at a rate of 18% is applicable in addition to the TDS calculated from the day after the return filing deadline until the actual payment date. Alternatively, the amount will be determined and collected according to legal provisions.

4

Delayed submission of TDS returns

A penalty of ₹100 per day for each day of delay will be imposed with a maximum cap of ₹5000 applicable under each relevant Act.

How to get TDS Refund under GST?

If an excess amount is deducted and remitted to the government a refund can be requested, as this excess does not constitute tax owed to the government. If the deducted amount has already been added to the supplier's electronic cash ledger, the deductor cannot get it back as a refund. The deductee retains the right to claim a tax refund in accordance with the refund provisions outlined in the relevant legislation.

TDS under GST is a mechanism aimed at ensuring compliance and preventing tax evasion. It's governed by Section 51 of the Central Goods and Services Tax Act, 2017, applying to specific categories of registered persons.

Deductors are mandated to deduct TDS at a rate of 2% on the value of supplied goods or services excluding taxes surpassing ₹ 2.5 lakh in a financial year.

TDS plays a crucial role in India's indirect tax system. Deductors must file TDS returns and adhere to TDS provisions. Non compliance can lead to penalties and interest, hence seeking professional assistance for accurate compliance is recommended.

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