Meaning of TDS

Tax deducted at source is a system wherein specified person responsible for making certain specified payments (i.e deductor) is liable to deduct a certain percentage of tax before making payment in full to the receiver (i.e deductee). This amount of TDS deducted is deposited to the government by the deductor and the deductee is allowed Tax Credit of such TDS amount.

Why TDS under GST?

The concept of TDS has been incorporated under GST with the intent to bring high value transactions under control. Although, TDS under GST has no effect on tax revenue of Government,the underlying aim is to enhance the control and prevent tax evasion.The provisions regarding TDS under GST are governed by section 51  of the CGST Act,2017.

Who is liable to deduct TDS under GST?

  • A department or an establishment of the Central Government or State Government
  • Local authority; or
  • Governmental agencies; or
  • Such persons or category of persons as may be notified by the Government.

As per notification number  33/2017 dtd 18/09/2017,following class of persons have been notified by Government under section 51(1)(d)

An authority or board or any other body-

-setup by an act of parliament or a state legislature or

-established by any government,

Society established by CG or SG or local authority under society registration Act, 1860.

PSU (Public Sector Undertaking

When to deduct TDS under GST?’

The abovementioned persons will be liable to deduct TDS from the payment made to supplier for any supply ,be it supply of goods or supply of services when the total value of supply under a ‘Contract’  exceeds Rs 2,50,000.00. However, such value has to be taken excluding the amount of IGST, CGST, SGST,UTGST or any Cess indicated in the invoice. It is pertinent to note the fact that the limit has been set contract-wise and not invoice-wise to avoid raising of multiple invoices of smaller values in a contract of higher value to defeat the provisions of TDS.

Rate of TDS under GST

TDS at the rate of 1% has to be deducted under both CGST & SGST Act. Hence ,the effective rate of TDS is 2% on the value of supply.

Procedural Obligations for Deductor in respect of TDS under GST

(i) Registration of Deductor for TDS under GST

As per section 24 of the CGST Act, persons liable to deduct Tax at Source under section 51 of the Act, are mandatorily required to be registered, irrespective of their turnover and whether they are separately registered or not. Such person can obtain registration using his Tax Deduction Account Number(TAN) issued under the Income Tax Act,1961 by filling up the form GST REG-07.

(ii) Deposit of TDS under GST

The deductor is liable to deposit such TDS to the credit of Central Government till the 10th day of the succeeding month in which tax has been deducted.

(iii) Return Filing by Tax Dedctor under GST Law

The deductor is also liable to furnish TDS return till 10th day of the succeeding month in which tax has been deducted in the form GSTR-7 indicating the name of the supplier,his GSTIN,Contract Value,TDS deducted etc.Such TDS will be credited to Electronic Cash Ledger of the Supplier and he can credit of such TDS for payment of tax or any other liability.

(iv) Tax Deduction Certificate under GST Law

As per section 51(3) of the Act, a TDS certificate is required to be issued by the deductor in form GSTR-7A to the deductee within 5 days of crediting the amount to the Government. Such certificate shall contain –Contract Value,Rate of deduction,Amount deducted etc.The important fact to be noted is that the time limit is within 5 days of date of Credit of TDS to Government. Hence,the last date of issue of TDS certificate turns out to be 15th of succeeding month in which TDS has been deducted.

As per section 51(4) of CGST Act,2017 , if the deductor fails to issue the Tax Deduction Certificate,he shall be liable to pay a late fee of Rs 100/- per day from the expiry of 5th day till the date when certificate has been issued . However,such late fee shall not exceed Rs 5000/-.

Date of Applicability of TDS Provision

TDS and TCS provisions under GST to be applicable from 1st October 2018 as competent Authorities has suspended Provisions of TDS and TCS till 30.09.2018. Previously, these provisions were applicable from 1st July 2018.

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January 2021