Tax Deducted At Source ( TDS ) Under Goods and Services Tax (GST)
GST or Goods and Services Tax is a value-added tax that is levied on the supply of most of the goods and services. It is paid by consumers but remitted to the government by business entities who 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 price for a product which shall be collected will be inclusive of GST.
In India GST system was established during the year 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 the products became low and the small entities will be exempted or be given virtue of paying low rates of taxes. It also helped in bringing down the average tax burden on firms and also made taxation easy which boosted foreign investment in the country generating more employment opportunities.
TDS on GST
TDS is nothing but Tax Deductible at Source and 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 is exceeding 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 (between multiple states), then TDS deducted shall be 2% as IGST will be the one applicable 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 major purpose for introducing the concept of TDS under GST was to provide government with a trail of transactions so as to monitor and verify the compliance, which would help in avoiding tax evasion and also increases 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
- Such persons or category of persons notified by the government. And the following category of assesse’s have been specifically 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 Society 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 are provided by GST Law with regard to the above-said cases, where the TDS shall not be deducted even if the same is done by the above-specified persons also:
- The contract value does not exceed INR 2,50,000,
- Location of the recipient is different from the location of supplier and 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, the location of the supplier is also Karnataka. But the location of the recipient is Maharashtra due to which the TDS on GST Deduction shall not be applicable in this case.
Depositing TDS on GST and the Issue of Certificate
The TDS that was deducted on the GST should deposit the same 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 into the account of the Central Government within the prescribed time limit, then the deductor shall be liable to pay interest.
And the deductor shall also issue a certificate regarding the same in GSTR 7A to the deductee within 5 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 the supplier here can now take this amount as credit in an electronic cash ledger and use the same for paying tax or such other liability.
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.