Tax Deducted at Source is one of the ways of government to collect and secure payment of tax based on fixed percentages on the amount payable by the receiver on goods / services. According to section 51 of the CGST Act, following are the persons who are liable to deduct TDS under GST:
- Department or establishment of Central Government or State Government
- Local Authority
- Governmental Agencies
- Category of persons as may be notified by the government on the recommendation of the GST Council
In addition to the aforementioned persons, the government via notification no. 50/2018 dated 13th September, 2018, added set of persons liable to deduct GST. These include:
- Any authority, Board or any other Body which is set up by an Act of Parliament or State Legislature or by any government with 51% equity or control to carry out any function.
- Society established by Central Government, State Government or Local Authority under Societies Registration Act, 1860.
- Public Sector Undertakings.
Applicability of TDS under GST
Recipients of goods or services (deductor) who enter into a contract with a supplier for taxable goods or services of a value exceeding INR2.50 Lakhs are required to deduct TDS from the tax invoice of such suppliers. This TDS is deducted from the taxable amount of the supply which excludes the GST component on such taxable goods or services. There are certain conditions that need to be fulfilled which are as follows:
- The aggregate value of taxable supply must exceed INR2.50 Lakhs under a single contract. This taxable value excludes CGST, SGST, IGST, UTGST and CESS applicable under GST.
- If the recipient enters into a contract with the supplier for both taxable supply and exempted supply, TDS would be deducted only if the value of taxable supply in the contract exceeds INR2.50 Lakhs.
Following are the cases when TDS is not to be deducted:
- Where the total value of taxable supply is less than or equal to INR2.50 Lakhs under the single contract.
- The Total contract value exceeds INR2.50 Lakhs both for taxable as well as exempted supply. However, the value of taxable supply under such contract is less than or equal to INR2.50 Lakhs.
- Where, the recipient receives exempted goods and services.
- Where, the location of the supplier and the Place of Supply is in a State or UT different from the location (State or UT) of the recipient / deductor.
- In cases where the contract includes activities or transactions mentioned in Schedule III of CGST/SGST Acts regardless of their value (list of items not covered under GST).
- Where tax is required to be deposited on reverse charge basis by the recipient as whole of the tax is required to be deposited by recipient.
- In cases where payment is made to the supplier
- Where the payment is with regards to the CESS component
Rate of tax
TDS under GST is to be deducted at the rate of 2% on the payment made to the supplier of taxable goods and services.
Due Date for Depositing TDS
TDS must be deposited to the government by the 10th of the succeeding month in which TDS was deducted. In case the recipient fails to deposit the TDS within the prescribed time limit, he is liable to pay interest for the same.
Every deductor who is liable to deduct Tax at Source is required to issue a TDS Certificate in Form GSTR-7A, within 5 days of depositing TDS to the government, to the supplier/ deductee. In case, the deductor fails to do so, he is liable to pay a late fee of INR100 per day from the expiry of the 5th day until the certificate is issued but maximum of INR 5,000. The TDS so deposited to the government account is reflected in the electronic cash ledger of the deductee which can be used to pay tax or any other amount only when deductor files TDS return and for the amount reflecting in filed TDS return.
The recipient / TDS deductor is required to file return in Form GSTR-7 within 10 days from the end of the month in which TDS was deducted. In cases where the supplier is unregistered, the name of the supplier should be mentioned in place of his GSTIN mentioned in the Return.
At AJSH, we assist our clients in dealing with various GST matters (GST registration, filing of GST returns, claiming refund & GST Audits) by providing them adequate support and guidance from our end. To know more about TDS under GST, please click here.