How to Effectively Deduct TDS on GST
While you must be familiar with the concept of TDS under Income Tax law, but are you aware that there is a TDS under GST law as well. Sounds new, so here we are with another blog to deeply understand this overlooked concept which you may or may not have heard before.
What do we mean by TDS under GST?
This concept is not new, it was also present in the previous VAT framework. Under Section 51 of the CGST Act, 2017 & Section 20 of the IGST Act, 2017, the tax deduction at source under GST lies. The prime purpose of this law is to curb indirect tax evasion particularly in transactions involving government bodies. This does impact the revenue collection of Central Board of Indirect Taxes (CBIC) as the person can claimed credit of this tax deducted. Simply, this is a deduction made at the source when a specified supply is made under GST.
Who are liable to deduct tax under GST?
As per the section 51 of the CGST Act, 2017, it is mandatory for the below-mentioned persons and entities to deduct tax:-
- Department of Central or State Government (Like Ministry of Road Transport and Highways)
- Local Authority (Like Local Municipal Corporations)
- Government Agencies like the National Highway Authority of India (NHAI)
- Notified Persons by Government on the recommendations of GST Council
Additionally with a notification no. 33/2017 – Central Tax dated 15th September 2017, government has further elongated this list applying to:-
- Body set-up by an Act of Parliament or a State Legislature (like Public Service Commissions)
- Establishments with having 51% or more control by Government (like ISRO)
- Societies Established under the Societies Registration Act, 1860 (like DMRC)
- Public-Sector Undertakings (like BHEL)
Applicability of TDS under GST
Under the GST framework, tax is required to be deducted from payments made to a supplier when the total value of the taxable supply specified in a contract exceeds ₹2,50,000 (two lakh and fifty thousand rupees). This means that if you’re entering into a contract where the overall value goes beyond this threshold, you must ensure that the appropriate tax deduction is applied during the payment process.
It is important to note that this threshold excludes any taxes applicable under GST, such as Central Tax, State Tax, Union Territory Tax, Integrated Tax, and any applicable Cess.
When TDS is exempted?
Tax deduction at source (TDS) under the GST framework is not required in several specific circumstances, which are mentioned below:
I. Value of Supply: In cases, we you are dealing with the specified persons but the total value of the contract is less than ₹2.5 lacs then TDS will not be levied. Similarly, if the total value exceeds ₹2.5 lacs but the supply is a combination of taxable and exempt items but the value of taxable supply is less than or equal to ₹2.5 lakh.
II. Exempt Goods & Services: The exempt goods & services as per the notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017 & No. 2/2017 – Central Tax (Rate) dated 28.06.2017 is out of the scope of TDS under GST law. The same apply on the non-GST applicable goods such as petrol, diesel, petroleum crude, natural gas, aviation turbine fuel (ATF), and alcohol for human consumption.
III. Different Locations: As per the proviso of the Section 51 of the CGST Act, 2017, when the deductor (recipient’s) registered location is different from the deductee (supplier’s) location and place of supply then no TDS is applicable. Example, if a company in Gujarat (deductor) pays a supplier in Sikkim & POS is also in Sikkim, no TDS needs to be deducted, even if the transaction exceeds ₹ 2,50,000.
IV. Reverse Charge Mechanism: When the tax is to be paid under the reverse charge mechanism by the recipient (the deductee).
V. Payments to Unregistered Suppliers: When payment is made to a supplier who is not registered under GST.
VI. Cess Payments: For payments that relate solely to the Cess component.
Tax Rate for TDS
Nature of Supply | Type of TDS | Tax Rate |
When the supplier (deductee) and the location of the supply are in the same state or Union Territory (in the absence of specific legislative provisions): | CGST | 1% |
SGST/UTGST | 1% | |
When the supplier (deductee) and the place of supply are in different states: | IGST | 2% |
Procedure around the TDS under GST
As it is cleared now that who has to detect tax and when, let’s see how the tax is deducted:-
1. Registration: Deductors must register on the GST portal to obtain a GSTIN specifically for TDS.
- Access the GST Portal: Visit www.gst.gov.in and go to Services > Registration > New Registration.
- Select Tax Deductor and Enter Details: Choose “tax deductor” and fill in your PAN/TAN, state, district, legal name, mobile number, and email address. Complete the CAPTCHA and submit.
- Verify OTPs: After submission, you will receive two OTPs via your registered mobile and email. Enter both to proceed and obtain a Temporary Reference Number (TRN).
- Complete the Application Form: Navigate to Services > Registration > Select TRN. Enter the TRN and CAPTCHA, then proceed with the OTP verification. The application form (GST REF-7) has sections for:
- Business Details: Update your office information and jurisdiction.
- DDO Details: Enter the Drawing and Disbursing Officer’s name, contact information, designation, PAN, and Aadhaar.
- Authorized Signatory: This will auto-populate from the DDO details.
- Office Address: Provide the office address of the Drawing and Disbursing Officer (DDO) and attach supporting documentation.
- Final Verification and Submission: Review all details for accuracy, choose a signing option (DSC or EVC), and submit the application. You will get a notification confirming that your submission was successful. This can be done with guidance of GST Return Filing Services.
2. Steps for TDS Deduction
- When TDS Should Be Deducted: Tax Deducted at Source (TDS) should be applied at the earliest of either the payment date or the date the amount is credited to the supplier’s account.
- Depositing TDS with the Government: The deductor is responsible for depositing the deducted TDS using a challan through the official GST portal. Deposit the deducted TDS into the government account within ten days after the end of the month in which the deduction was made.
- Filing GSTR-7 (TDS Return): TDS deductors must file the GSTR-7 return by the 10th of the following month, with this information being made accessible to the deductee. Deductions that occur before registration should be included in the first return filed after registration.
- Issuing GSTR-7A (TDS Certificate): The deductor must provide a system-generated GSTR-7A certificate to the deductee within five days of the TDS being credited to the government. This certificate will contains the contract value, deduction rate, amount deducted, and the payment made to the government.
3. Credit Claim by Deductee: Once the GSTR-7 is submitted, the deducted amount will reflect in the deductee’s GSTR-2A/4A, enabling them to utilize this amount for fulfilling their own tax liabilities.
Final Thoughts
Understanding TDS under GST is key to staying compliant and maintaining a fair tax system. For both deductors and suppliers, this knowledge leads to smarter financial management and smoother business dealings. Staying updated with the latest regulations helps you confidently fulfill your obligations and be prepared for any changes that may arise.