GST or Goods and Services Tax is a value-added tax that is levied on the supply of most goods and services. It is paid by consumers but remitted to the government by business entities that are making the supply of these goods and services, or both. GST is added to the price of the goods or services sold to the consumers, and the cost for a product that shall be collected will be inclusive of GST.
In India, the GST system was established in 2017. The purpose or objective of introducing GST in the country was to remove the cascading effect of taxation or double taxation from the manufacturing level to the consumption level. With the introduction of GST, the final price of products has become lower, and small entities will be exempt or given the benefit of paying lower tax rates. It also helped reduce the average tax burden on firms and made taxation easier, which boosted foreign investment in the country, generating more employment opportunities.
TDS on GST
TDS is nothing but Tax Deductible at Source, under which, a person who is liable to make a payment (Deductor) to another person (Deductee) deducts tax while making the payment and remits the balance amount to the receiver. And this TDS amount deducted by the deductor shall be remitted by them to the Central Government.
Under the CGST Act, TDS at the rate of 2% is required to be deducted from the payment which is made to the supplier of any goods or services or both, if the value of such supply under contract exceeds INR 2,50,000, which means 1% CGST and 1% SGST. Here, while computing the value of the contract, the CGST, SGST, UTGST, IGST, and any cess included shall be excluded.
Say, Mr. X made an intra-state (within the state) supply of goods worth INR 5,00,000 to Mr. Y on which CGST of 9% and SGST of 9% are applicable. This will make the total bill amount to:
Supply Amount: INR 5,00,000
CGST @ 9%: INR 45,000
SGST @ 9%: INR 45,000
Total Bill Amount: INR 5,90,000
But Mr. Y while making the payment should deduct TDS at the rate of 2% where 1% is CGST and 1% is SGST. So, the deduction amount here will be INR 10,000 ((500000*1%) + (500000*1%)).
And if the same is an inter-state transaction (between multiple states), then the TDS deducted shall be 2%, as IGST will be the applicable tax here. It is to be noted that the tax amount, which is INR 45,000, should be excluded for the purpose of computing TDS.
The primary purpose of introducing the concept of TDS under GST was to provide the government with a trail of transactions, enabling it to monitor and verify compliance, which would help prevent tax evasion and expand the tax net. Under the GST Act, the person deducting the TDS would be required to deposit the same with the Government by the 10th of next month, and a Form GSTR7A should be issued to the individual or person from whom the TDS deduction was made.
Who is required to deduct TDS on GST?
The following class of persons is required by the GST Act to deduct TDS on GST from the payment made to the supplier of goods and services or both if the contract value of the same exceeds INR 2,50,000.
- A Central Government or State Government-owned Department or Establishment
- Local Authority
- Government Agencies
- The government notifies such persons or a category of persons. And the following category of assesses have explicitly been prescribed and notified by the Central Government and its Department, on which the provisions of TDS on GST would be applicable:
- An authority or board, or any other body with 51% or more participation by way of equity or control
- Formed by an Act of Parliament or a State Legislature, or
- Established by any Government,
- Society established by the Central Government or State Government, or a Local Authority under the Societies Regulations Act, 1860
iii. Public Sector Undertakings
And if the payments are made by any persons who are not included in the above-mentioned class, they shall not deduct TDS.
Cases where TDS on GST need not be deducted
There are certain exceptions which the GST Law provides with regard to the above-said cases, where the TDS shall not be deducted even if the above-specified persons do the same also:
- The contract value does not exceed INR 2,50,000,
- The location of the recipient differs from that of the supplier and the place of supply. Say the government of Maharashtra enters into a contract with a vendor registered in Karnataka for the supply of certain services by renting out their space in Karnataka. Here, the place of supply is Karnataka, and the supplier’s location is also in Karnataka. However, since the recipient is located in Maharashtra, the TDS on GST deduction is not applicable in this case.
Depositing TDS on GST and the Issue of Certificate
The TDS that was deducted on the GST should be deposited to the credit of the Government by the deductor by the 10th of the succeeding month in Form GSTR. If the same is not prescribed in the account of the Central Government within the prescribed time limit, then the deductor shall be liable to pay interest.
The deductor shall also issue a certificate regarding the same in GSTR-7A to the deductee within five days of depositing the TDS amount with the Government. If the same is not complied with by the deductor within 5 days from the date of deposit of the amount, a late fee of INR 100/day shall be payable by the deductor, which shall not be levied above INR 5,000. The deductee or supplier can now take this amount as a credit in an electronic cash ledger and use it to pay tax or other liabilities.
Hence, we can now conclude that the TDS shall be deducted on the payment made by the class of persons specified as per the GST L such that there is an audit trail which is provided to the government which will mitigate tax evasion and also helps in increasing the tax net.
