TDS under GST: Tax Deducted at Source under GST

When it comes to managing taxes, businesses often grapple with various components of the tax system. One crucial aspect that demands attention is Tax Deducted at Source (TDS) under the Goods and Services Tax (GST). Let’s break down what TDS under GST entails and how it impacts businesses. 

What is TDS under GST? 

TDS under GST is a mechanism where the tax is deducted at the point of payment to the supplier. This system helps the government track transactions and ensure tax compliance. It’s akin to a safety net that ensures tax is collected at the source of income. 

What is the TDS rate under GST?

Under the Goods and Services Tax law, the TDS rate is 2%. This rate is applicable as follows: 

This TDS rate is applied on the payment made to suppliers of taxable goods or services if the total value of such supply under a contract exceeds INR 2.5 lakh (excluding GST). Under GST, 2% (1% CGST + 1% SGST or 2% IGST) is the TDS rate. 

  • Example: If a government department awards a contract of INR 3 lakh to a supplier, the TDS would be 2% of INR 3 lakh, which is INR 6,000. 
  • CGST: INR 3,000; SGST: INR 3,000 

Who needs to deduct TDS?

Under Goods and Services Tax (GST), certain entities are required to deduct TDS: 

  • Government Departments: Central and state governments and their agencies. 
  • Local Authorities: Municipalities and other local governing bodies. 
  • Public Sector Undertakings (PSUs): Corporations owned by the government. 
  • Others: Entities notified by the government, such as specific boards or authorities. 

When is TDS Deducted?

TDS is deducted when a payment is made or credited to the supplier. This deduction applies if the total value of supply under a contract exceeds INR 2.5 lakh. However, it’s important to note that TDS is only applicable on the taxable supply of goods or services. 

How much TDS is deducted?

The rate of TDS under GST is 2%. This rate is divided into 1% CGST and 1% SGST or 2% IGST for interstate transactions. 

Filing and Reporting TDS

Once TDS is deducted, it must be deposited with the government by the 10th of the following month. The deductor needs to file GSTR-7, a monthly return form, by the 10th as well. This form contains details of the TDS deducted, TDS liability payable, and any adjustments made.

Additionally, a TDS certificate (GSTR-7A) must be issued to the supplier within five days of filing the return. 

What are the benefits of TDS under GST? 

  • Streamlined Tax Collection:
    • Ensures timely collection of tax at the source, reducing evasion. 
  • Easy Compliance Tracking:
    • Helps in keeping track of transactions and ensures proper compliance. 
  • Reduced Burden on Suppliers:
    • Suppliers receive the tax already deducted, simplifying their tax payment process. 

Challenges faced by Businesses

  • Compliance Burden:
    • Maintaining records and timely filing can be cumbersome for small businesses. 
  • Cash Flow Impact:
    • Immediate deduction of tax might affect the cash flow of businesses. 
  • Technical Hiccups:
    • Errors in filing returns or delays in issuing TDS certificates can create operational challenges. 

Process to claim TDS Refund under GST

  • Application for Refund:
    • The supplier needs to file an application for a refund using Form GST RFD-01 on the GST portal. 
  • Filing Details:
    • The application should include details such as: 
    • The amount of refund claimed. 
    • The reason for the refund. 
    • Relevant supporting documents, if required. 
  • Submission of Form:
    • Once the form is filled out, it needs to be submitted online through the GST portal. 
  • Acknowledgment:
    • Upon successful submission, an acknowledgment is generated in Form GST RFD-02. 
  • Processing by Tax Authorities:
    • The tax authorities will review the refund application. They may require additional documents or information to process the refund claim. If all details are in order, the refund claim is processed. 
  • Refund Sanction Order:
    • If the application is found to be in order, the tax authority issues a refund sanction order in Form GST RFD-06. 
  • Credit to Bank Account:
    • Once the refund is sanctioned, the amount is credited to the bank account of the supplier. 

What are TDS Certificates under GST?

Under the GST law, entities responsible for deducting TDS must issue a TDS certificate to the deductee (supplier).  

For example: Suppose a government department contracts a supplier for services worth INR 3 lakhs. The department deducts TDS of 2% (INR 6,000) and pays the supplier INR 2.94 lakhs. 

Within five days of depositing the TDS amount to the government, the department issues a TDS certificate (Form GSTR-7A) to the supplier. This certificate will include all the necessary details, such as the amount deducted and the date of deduction, allowing the supplier to claim the TDS credit in their GST return. 

Here are the key provisions related to the issuance of TDS certificates: 

  • Form for Certificate: 
    • The TDS certificate should be issued in Form GSTR-7A. 
  • Timeframe for Issuance:  
    • The certificate must be issued within five days of crediting the TDS to the government account. 
  • Details in the Certificate: 
    • The TDS certificate should contain the following details: 
    • Amount of TDS deducted. 
    • GSTIN of the deductor and deductee. 
    • Contract details. 
    • Amount paid to the deductee (supplier). 
    • Rate at which TDS has been deducted. 
    • Date of deduction. 
    • Date of deposit of TDS with the government. 
  • Late Issuance Penalty: 
    • If the deductor fails to issue the TDS certificate within the stipulated period of five days, a late fee of INR 100 per day for each day of delay is levied, subject to a maximum of INR 5,000. 

What is the importance of TDS Certificates?

  • Proof of TDS Deduction:
    • The certificate serves as proof that TDS has been deducted and deposited with the government. 
  • Credit for Deductee:
    • The details in the TDS certificate are used by the deductee to claim credit for the TDS amount in their GST returns. 
  • Reconciliation:
    • Helps in the reconciliation of TDS deducted by the deductor and claimed by the deductee. 

Conclusion 

In conclusion, TDS under GST is a significant step towards a more transparent and efficient tax system. While it ensures better compliance and tax collection, businesses need to stay diligent with their TDS obligations to avoid penalties.  

For any business, it’s vital to stay updated with the latest regulations and ensure that all TDS-related processes are seamlessly integrated into their financial operations.  

Consulting with expert tax professionals like 24efiling can help in navigating the complexities of TDS under GST. 

FAQs

1. What is TDS under GST and who is required to deduct it? 

TDS under GST refers to Tax Deducted at Source on payments made to suppliers of taxable goods or services. The following entities are required to deduct TDS: 
• Government departments and establishments. 
• Local authorities. 
• Government agencies. 
• Entities or persons notified by the government, such as public sector undertakings. 

2. What is the rate of TDS under GST and when is it applicable? 

The TDS rate under GST is 2% (1% CGST + 1% SGST for intra-state supplies or 2% IGST for inter-state supplies). TDS is applicable when the total value of supply under a contract exceeds INR 2.5 lakh (excluding GST).

3. How and when should the deducted TDS be deposited to the government? 

The deducted TDS should be deposited with the government by the 10th of the month following the month in which the deduction is made. The payment can be made online through the GST portal using the TDS deductor’s GSTIN.

4. What are the requirements for issuing TDS certificates under GST? 

TDS deductors must issue a TDS certificate in Form GSTR-7A to the deductee (supplier) within five days of crediting the TDS to the government account. The certificate should include details like the amount of TDS deducted, the GSTIN of both the deductor and the deductee, and the date of deduction and deposit. 

5. How can a deductee claim credit for TDS under GST? 

The TDS amount deducted is reflected in the electronic cash ledger of the deductee (supplier) on the GST portal. The deductee can use this amount to pay their output tax liability, making it a straightforward way to claim credit for the TDS deducted. 

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