Tax Deduction At Source Under Goods And Services Tax
GST (Goods and Services Tax) comprises three primary tax components, namely IGST, SGST and CGST. Under this regime, specific registered persons can deduct such taxes at the time of making payments to registered suppliers.
The government regulates the deduction and deposition of TDS under GST. Continue reading this article to get the details!
What Does TDS under GST Mean?
TDS (Tax Deducted at Source) is an efficient way of collecting taxes, and it offers revenue to the Government of India. It is a specific percentage of the sum paid by a recipient on services or goods. Section 51 of the CGST Act coupled with CGST (Central Goods and Services Tax) Rule 66 deals with TDS provisions under GST.
A registered authority can deduct 2% TDS on the amount payable to a supplier of services/goods, wherein the value of the supply goes beyond Rs. 2.5 lakh for an individual agreement. Tax deductions are not applicable when the state in which a receiver has registered is not the same as the place of supplier and the location of supply.
Who Can Deduct TDS as per GST Rules?
The following persons or entities are liable to deduct TDS under the GST regime:
- The category of persons or persons as the Government of India has notified
- Government agencies
- Local authority
- An establishment or a department of a State Government or the Central Government
These organisations also require deducting TDS as per a circular of September 13 2018:
- Public sector undertakings
- A society that a Local Authority, a State Government or the Central Government has established with a registration under the Societies Registration Act of 1860
- A body or a board or an authority that a government or a state legislature/the Parliament has set up (with the government having 51% equity)
Also Read: What Is Corporate Tax: Rates, Fees, Tax Return Forms And Due Dates
Is It Compulsory for TDS Deductors to Get Registered?
An individual who has to deduct TDS under GST needs registration mandatorily, wherein there’s no ceiling limit for it. You can obtain such registration without Permanent Account Number (PAN). However, it is compulsory to furnish your existing TAN (Tax Deduction and Collection Account Number) under this.
Are There Any Exceptions to TDS Deduction?
As per Section 51(1) of the Central Goods and Services Tax Act, there’s no need to deduct TDS when a recipient’s state of registration differs from the location of supply and the place of a supplier.
The chart below indicates the TDS applicability under GST based on the place of the supplies, the supplier, a recipient’s state of registration, and the cities involved:
| Sl. No. | City of Supply | Supplier’s City | Recipient’s State of Registration | Kind of Supply | TDS Deduction | Kind of GST |
| 1 | Karnataka | Delhi | Haryana | Interstate | No | IGST |
| 2 | Delhi | Delhi | Haryana | Interstate | No | IGST |
| 3 | Haryana | Delhi | Delhi | Interstate | Yes | SGST+CGST |
| 4 | Delhi | Delhi | Delhi | Interstate | Yes | SGST+CGST |
Is TDS Under GST Refundable?
If a deductor subtracts any additional amount and makes payment to the government, then you can claim a refund since such a tax amount doesn’t belong to the government.
However, it may happen that a supplier’s electronic cash ledger has already recorded this deducted sum. In this case, the sum so recorded can’t be reacquired as a deductor’s refund. A deductee may claim a tax refund subject to the provisions regarding refund under the Income Tax Act.
How to Calculate TDS under GST?
To deduct TDS, you must take the total value of supply as the required amount, excluding the Goods and Services Tax, that your invoice indicates. Hence, you should not deduct TDS on the IGST (Integrated GST), SGST (State GST) or CGST (Central GST) component of your invoice.
Suppose Mehul (vendor) supplies goods of Rs. 2,000 to Jay (buyer). The GST rate is 18%. Jay will pay Rs. 2,000 (total value of supply) + Rs. 180 (SGST) + Rs. 180 (CGST) to Mehul. This means, Jay will be deducting Rs. 200 (9% x Rs. 2,000) as TDS under SGST and Rs. 200 (9% x Rs. 2,000) as TDS under CGST.
When Jay (buyer) pays Mehul (vendor), the accounting entry will be as follows:
| Details | Debit | Credit |
| Supplier | Rs. 2,000 | – |
| SGST | Rs. 180 | – |
| CGST | Rs. 180 | – |
| SGST TDS (9% of Rs. 2,000) | – | Rs. 180 |
| CGST TDS (9% of Rs. 2,000) | – | Rs. 180 |
| Bank | – | Rs. 2,000 |
Also Read: What Is CESS In Income Tax: Overview, Types And Calculation
Final Word
The government has adopted TDS provisions under GST to enhance transparency and mitigate tax evasions. TDS under Income Tax and TDS under GST function in a similar manner. The primary purpose of both is to trace the taxpayers easily and ensure a systematic tax flow towards the government.
TDS provisions under GST minimise the tax compliance burden on registered vendors if they supply goods/services to the specified government bodies.
FAQs On TDS Under GST
Ans: You must pay TDS within ten days from the end of the month during which tax deduction took place. The following will receive such a payment:
1. State Government for SGST
2. Central Government for CGST and IGST
Ans: To deduct TDS, you should consider the total value of supply as the required amount, excluding the GST that your invoice specifies. This means that you must not deduct TDS on the IGST, SGST or CGST component of your invoice.
Ans: Just as the IT law, a deductor under GST must issue a TDS certificate to the respective individual through Form GSTR-7 within five days of tax deposition to the government. However, based on GSTR-7 filed, a deductee can access GSTR-7A automatically through the official GST portal.
Ans: After a deductor files TDS returns, a supplier’s (deductee’s) electronic cash ledger will automatically reflect it. A supplier may claim credit of this TDS in the electronic ledger and utilise it for other tax payments.
Ans: A deductor must file TDS returns within ten days from the end of the month by way of form GSTR-7. When an unregistered supplier’s GSTIN isn’t applicable, you can mention that entity’s name. A supplier’s electronic ledger displays this information.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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