You might be aware of the concept of TDS & TCS in the Income tax Act. Similar concepts were introduced in GST, though these were deferred to a later date. Recently, government has notified that the provisions relating to TDS under GST would become applicable w.e.f. 01st October 2018.
So, the laws around these concepts become relevant & thus we aim to let taxpayers be acquaint with the applicable laws.
TDS under GST
TDS is one of the modes/methods to collect tax, under which, certain percentage of amount is deducted by a recipient at the time of making payment to the supplier.
GST law has mandated a certain class of persons listed below to deduct TDS while making payments to the supplier of goods or services:
- A central or state government department or establishment.
- Local Authority
- Government agencies
- Other persons, as may be notified
When is TDS under GST required to be deducted?
The above persons are required to deduct TDS at 2 % where the total value of such supply, under an individual contract, exceeds INR 2,50,000 (excluding the amount of GST). This also means that TDS would be deducted on the value exclusive of GST and no TDS would be deducted on the GST component.
It is also to be noted that TDS is not required to be deducted if the location of the supplier and the place of supply is in a State which is different from the State of registration of the recipient.
For example: Supplier as well as the place of supply are in State A and the recipient is in State B. The supply would be intra-State supply. In such case TDS would not be deducted.
Compliances to be met by TDS deductor
- Registration as TDS deductor: A TDS deductor is required to register compulsorily without any threshold limit. The deductor has a privilege of obtaining registration under GST without requiring PAN. He can obtain registration using his Tax Deduction and Collection Account Number (TAN) issued under the Income Tax Act.
- Depositing TDS with the government: The deductor has to deposit the TDS to the government by 10th of succeeding month and file GSTR 7, based on which the supplier would be able to claim the credit of TDS.
- Issuing TDS certificate: The deductor is also required to issue the TDS certificate to the deductee in form GSTR-7A, this needs to be done within 5 days of remitting the TDS to the government.
How can deductee claim the benefit of TDS under GST?
Any amount deducted as TDS and reported in GSTR 7 will automatically reflect in the electronic cash ledger of the deductee. The supplier can take this amount as credit in his electronic cash register and use the same for payment of tax or any other liability.
(The author is a CA in practice at Delhi and can be contacted at: E-mail: [email protected], Mobile: +91-9811741451)
Two clarifications that address most of the confusion around GST TDS applicability:
1. WHO IS REQUIRED TO DEDUCT:
GST TDS under Section 51 applies only to specified categories: Central/State Government departments, PSUs, local authorities, and other persons notified by the government. Private companies are NOT required to deduct GST TDS, even if they receive government contracts. The obligation is on the government entity making the payment.
2. THE RS 2.5 LAKH THRESHOLD IS PER CONTRACT, NOT PER INVOICE:
If the total value of a contract (supply of taxable goods or services) exceeds Rs 2.5 lakh, GST TDS applies on every payment under that contract, not just when a single invoice crosses Rs 2.5 lakh. So if you have a Rs 10 lakh annual contract paid in 12 monthly invoices of Rs 83,333 each, GST TDS is deductible on each invoice because the contract value crosses the threshold.
The deduction rate is 2% (1% CGST + 1% SGST for intra-state, or 2% IGST for inter-state). Deducted amounts must be deposited by the 10th of the following month, and GSTR-7 must be filed by the same date.
Will TDS applicable on monthly rent payments, if it exceeds threshold limit?