TDS refers to a tax collection mechanism in which a payer (deductor) deduct tax amount while paying the receiver (deductee).
TDS under income tax and GST are completely independent of each other i.e they are not related.
In this article, we will cover various aspects of TDS under GST with example.
Let’s have a look!
Who is Liable to Deduct TDS (Deductor)
According to section 51 of CGST Act, 2017, Govt. may by order mandate the following person to deduct TDS @ 2%:
- a department or establishment of the Central Government or State Government; or
- local authority; or
- Governmental agencies (currently exempted from deducting TDS); or
- such persons or category of persons as may be notified by the Government on the recommendations of the Council
Govt. has notified the following persons to deduct TDS:
- An authority or a board or any other body,
- set up by an Act of Parliament or a State Legislature; or
- established by any Government,
- with 51% or more participation by way of equity or control, to carry out any function;
- The society established by the Central Government or the State Government or a Local Authority under the Societies Registration Act, 1860 (21 of 1860);
- Public sector undertakings.
No TDS on the supply made between any of the above persons. Say, a local body providing service to central govt. Notification No 73/2018-Central Tax
TDS was applicable from 1st October 2018.
2% on the payment made or credited to the supplier (goods/services).
|Intra-state||1% SGST + 1% CGST|
When TDS Should be Deducted
TDS should be deducted when the total value of supply in a single contract is more than Rs.2,50,000/-.
Que 1: Is TDS to be deducted for 2 separate contract of 1.5 lakh each?
Ans: No, the provision of TDS is applied separately in every contract.
Que 2: Is TDS to be deducted on GST amount?
Ans: No, the value of supply shall be taken as the amount for TDS deduction. I repeat again, TDS should not deducted on GST amount.
Example: Under a contract, Mr. Ram of Kolkata provides service to Mr.Shyam(Kolkata) for a value of Rs.300000(Excl.GST) over a period of 3 months. At the end of 1st Month Mr.Ram bills for Rs.1,18,000 (3 lakh/3 month + 18% GST).
|Service charge for the month of Nov’18||100000|
|CGST @ 9%||9000|
|SGST @ 9%||9000|
|TDS to be deducted @ 2%|
|CGST @1% of 1 lakh||1000|
|SGST @1% of 1 lakh||1000|
In this case, Mr.Shyam(Deductor) will deduct Rs.2000/- (1 lakh*2%) as TDS. Although invoice amount doesn’t exceed 2.5 lakh TDS should be deducted because the contract amount (3 lakh) exceeds 2.5 Lakh.
When TDS Should Not be Deducted
In the following 2 cases TDS should not be deducted:
1. Recipient’s Location different from both Supplier’s Location and Place of Supply
TDS should not be deducted when the recipient’s state/UT is different from the state/UT of the supplier and the place of supply.
Have a look:
|Location of Recipient||Location of Supplier||Place of Supply||TDS Applicability|
|West Bengal||West Bengal||Odisha||Yes|
|West Bengal||Odisha||West Bengal||Yes|
TDS should not be deducted when deductor’s state of registration is different from the state as mentioned in the tax invoice.
Example: NTPC (PSU) branch in Chhattisgarh hires a caterer from Kolkata to cater an event in Kolkata for Rs.4 lakh (Excl.GST).
Both the place of supply and location of the supplier is in West Bengal (Kolkata) and the recipient’s location is Chhattisgarh.
In this case, there is no requirement to deduct TDS.
2. Individual Contract value doesn’t exceed Rs.2.5 lakh
TDS should not be deducted if the value of a single contract value is up to Rs.2,50,000/-.
Example: Mr.Kaushik, enters into 2 separate contracts.
Contract 1: For Providing Security Service: Rs.1 Lakh
Contract 2: For Transporting Goods: 2 Lakh
In this case, No TDS should be deducted.
Every person (deductor) who is required by section 51 of CGST Act, 2017 to deduct TDS should compulsorily get GST registration without any threshold limit. Deductor can get registration under GST by using his Tax Deduction and Collection Account Number (TAN). Read: Who Should Get GST Registration?
Deposit of TDS with the Government
TDS should be deposited with the appropriate govt. (Centre/state) by 10th of the succeeding month. In case of default in depositing TDS with govt. interest shall be levied.
Deductor should issue TDS certificate to the deductee in form GSTR 7A within 5 days of crediting the amount to the Govt, failing which the deductor would be liable to pay a late fee of Rs. 100/- per day from the expiry of the 5th day till the certificate is issued. Maximum late fees is Rs. 5000/-
Deductor should file TDS return in Form GSTR-7 within 10 days from the end of the month. If the supplier(deductee) is unregistered, the name of the supplier rather than GSTIN shall be mentioned in the return.
The details of tax deducted at source furnished by the deductor in FORM GSTR-7 shall be made available to each of the suppliers in Part C of FORM GSTR-2A electronically through the Common Portal and the said supplier may include the same in FORM GSTR-2.
The amounts deducted by the deductor get reflected in the GSTR-2 of the supplier (deductee). The supplier can take this amount as a credit in his electronic cash register and use the same for payment of tax or any other liability.
Late filing of TDS return will attract late fees of Rs.100/-for every day during which such failure continues, subject to a maximum amount of Rs.500/-
Refund of TDS
Deductee can claim a refund (u/s 54 CGST Act) of any excess or erroneous amount deducted and paid to the Government account. However, if the deducted amount is already credited to the electronic cash ledger of the supplier, the same shall not be refunded.