Who can Deduct TDS under GST? Threshold, Percentage and Exemptions Explained
TDS deductors are required to follow specific procedures to account for TDS under GST. First, they must obtain compulsory registration under Section 24 of the CGST/SGST Act
Tax Deducted at Source ( TDS ) is a method of tax collection where a certain percentage of the payment made for goods or services is deducted by the payer before it is transferred to the receiver. As per Section 51 of the GST Act, certain authorised entities can deduct the TDS from the direct payment. It mainly applies to entities like government departments, public sector...
Tax Deducted at Source ( TDS ) is a method of tax collection where a certain percentage of the payment made for goods or services is deducted by the payer before it is transferred to the receiver.
As per Section 51 of the GST Act, certain authorised entities can deduct the TDS from the direct payment. It mainly applies to entities like government departments, public sector undertakings (PSUs), and other notified organizations.
WHO CAN DEDUCT TDS UNDER GST
According to Section 51, the government has empowered specific entities to deduct tax at the source when making payments to suppliers of taxable goods and services. These entities, collectively referred to as "the deductors," include:
(a) a department or establishment of the Central Government or State Government; or
(b) local authority; or
(c) Governmental agencies; or
(d) such persons or category of persons as may be notified by the Government on the recommendations of the Council,
TDS RATE TO DEDUCTED AND THRESHOLD LIMIT
The TDS rate under GST is fixed at 2% (1% Central GST and 1% State GST or Union Territory GST, or 2% Integrated GST), applicable when the total value of taxable supply under a contract exceeds ₹2.5 lakh.
Thus, TDS is applicable when the total value of a taxable supply under a contract exceeds ₹2.5 lakh (excluding GST and cess) and so as the threshold limit as in present.
For instance, if a contractor receives a supply order for Rs. 10 lakh, with the payment being made in two installments, TDS will be applicable on both payments. Even if the amount is paid in instalment, the TDS has to be deducted in the whole amount.
PROCESS FOR PAYMENT AND REPORTING
Deduction
The deductor must deduct tax at the time of payment or credit to the supplier's account, whichever is earlier.
- Deposit
The deducted amount should be deposited with the government within 10 days of the end of the month in which the deduction is made. The clause states that “The amount deducted as tax under this section shall be paid to the Government by the deductor within ten days after the end of the month in which such deduction is made, in such manner as may be prescribed.”
The term as may be prescribed is something stated in Rule 85 of the GST Rules. As per Rule 85(4) “The amount deducted under section 51, or the amount collected under section 52, or the amount payable on reverse charge basis, or the amount payable under section 10, any amount payable towards interest, penalty, fee or any other amount under the Act shall be paid by debiting the electronic cash ledger maintained as per rule 87 and the electronic liability register shall be credited accordingly.”
- Filing Returns
The deductor must file TDS returns under Form GSTR-7, providing details of deductions and deposits. The proper prescription is provided in Rule 66 of the GST Rules.
- Issuing TDS Certificates:
The deductor is required to issue a TDS certificate in Form GSTR-7A to the supplier within 5 days of depositing the tax.
As per Rule 66, every registered person required to deduct tax at source under Section 51 (referred to as the "deductor") must file a return in FORM GSTR-7 electronically through the common portal or through a Facilitation Centre notified by the Commissioner. The return must be submitted by the tenth day of the month following the calendar month.
The details provided by the deductor in the return will be made available electronically to each deductee on the common portal after the filing of FORM GSTR-7, allowing the deductee to claim the tax deducted in their electronic cash ledger after validation.
Additionally, the certificate of tax deduction at source, as referred to in Section 51(3), will be issued electronically to the deductee in FORM GSTR-7A based on the information provided in the return.
TDS RETURNS
The deductor is also required to file a return in Form GSTR-7 within 10 days from the end of the month. If the supplier is unregistered, the name of the supplier rather than GSTIN shall be mentioned in the return.
HOW TO CLAIM TDS CREDIT
The supplier (deductee) can claim the TDS amount as a credit in their electronic cash ledger once the deductor files their GSTR-7 return. The TDS amount reflected in the deductor’s return enables the deductee to utilize this credit for payment of their tax liability.
The Section 51 (5) states that “The deductee shall claim credit, in his electronic cash ledger, of the tax deducted and reflected in the return of the deductor furnished under sub-section (3) of section 39, in such manner as may be prescribed.”
ARE TDS PROVISIONS APPLICABLE FOR BOTH INTRA AND INTER STATE?
The proviso to Section 51(1) of the GST Act specifies that no deduction of tax is required if the location of the supplier and the place of supply are in different states. TDS is not applicable to interstate supplies where Integrated Goods and Services Tax (IGST) is chargeable.
As a result, transactions involving interstate trade, exports, and supplies to Special Economic Zones (SEZs), where goods are cleared with the payment of tax, are not subject to the TDS provisions under GST.
REFUNDS IN CASE OF EXCESS OR ERRONEOUS DEDUCTIONS
Any excess or erroneous amount deducted and paid to the Government account shall be dealt for refund under section 54 of the CGST Act, 2017. However, if the deducted amount is already credited to the electronic cash ledger of the supplier, the same shall not be refunded.
GSTN FOR TDS DEDUCTOR
A separate GSTIN is allotted to registered persons (deductors) for deducting TDS under GST. This is in addition to their existing GST registration. The allotment of this GSTIN is based on the PAN and TAN of the deductor.
The government entity/public sector undertaking etc., engaged in commercial activity is supposed to get registered as “TAX DEDUCTOR” even though registered already as TAXPAYER.
REGISTRATION PROCESS AS TAX DEDUCTOR
As per Rule 12 of the KGST/CGST Rules, 2017, every TDS deductor must register under GST, regardless of their threshold limit. The registration process includes the following steps:
- Submission of Application: The eligible person or category of persons must submit an application in FORM GST REG-07 electronically, signed or verified via electronic verification code, either directly or through a Facilitation Centre.
- Grant of Registration: After verification, the proper officer will grant the registration and issue a certificate in FORM GST REG-06 within three working days from the application submission.
- Cancellation of Registration: If it is found that the person is no longer liable to deduct or collect tax at source under Sections 51 or 52, the proper officer may cancel the registration. The cancellation will be communicated electronically in FORM GST REG-08, following the procedure outlined in Rule 22.
Provided that the proper officer shall follow the procedure as provided in rule 22 for the cancellation of registration.
CONSEQUENCES OF NON-COMPLIANCE UNDER TDS
Here are the consequences of non-compliance under GST regarding TDS:
- TDS Not Deducted: Under Section 50(1) of the CGST Act, 2017, if TDS is not deducted, interest must be paid along with the TDS amount. If not, the amount will be determined and recovered according to the law.
- TDS Certificate Not Issued or Delayed: As per Section 51(4) of the CGST Act, 2017, if the TDS certificate is not issued or is delayed beyond the prescribed period of five days, a late fee of Rs. 100 per day will be charged, up to a maximum of Rs. 5,000.
- TDS Deducted but Not Paid or Paid Late: Under Section 50(1) of the CGST Act, 2017, if TDS is deducted but not paid to the government or is paid after the 10th of the following month, interest must be paid along with the TDS amount. Otherwise, the amount will be determined and recovered as per the law.
- Late Filing of TDS Returns: As per Section 47 of the KGST/CGST Act, 2017, if TDS returns are filed late, a fee of Rs. 100 per day will be charged for each day the failure continues, up to a maximum of Rs. 5,000.
ACCOUNTING FOR TDS BY DEDUCTOR
TDS deductors are required to follow specific procedures to account for TDS under GST. First, they must obtain compulsory registration under Section 24 of the CGST/SGST Act. Second, they need to remit the TDS collected by the 10th day of the month following the month in which the TDS was deducted, reporting it in GSTR-7.
The amount of TDS deposited will be reflected in the electronic cash ledger of the supplier. Additionally, the deductor is obligated to issue a certificate for the TDS to the deductee within five days of crediting the TDS to the government account. If the deductor fails to do so, a penalty of Rs. 100 per day, subject to a maximum of Rs. 5,000, will be levied.
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