Initially TDS provisions are introduced in Income tax act, 1962. Section 51 of the CGST Act, 2017 talks about tax deduction at source or TDS under GST law. As per this provision, only few organisations are required to deduct tax while paying to the supplier. It’s not applicable to all cases.
Who has to deduct tax at source or TDS under GST
As per law, following persons are liable to deduct tax at source or TDS under GST;
- Central or state government department or establishment – Section 51(1)(a);
- Local authority – Section 51(1)(b);
- Government agencies -Section 51(1)(c);
- An authority or a board or any other body set up by an act of Parliament or a state legislature or establishment by any government with 51% or more participation by way of equity or control, to carry out any function – Section 51(1)(d);
- Society established by the central government or the state government or a local authority under the societies registration act,1860 – Section 51(1)(d);
- Public sector undertaking – Section 51(1)(d);
Such deductor needs to get compulsorily registered under section 24 of the CGST/SGST Act.
TDS rate and limit
If the total value of supply of taxable goods and/or services under a contract exceeds Rs 2,50,000, tax at the rate of 1% of such payment made to the supplier shall be deducted. Value of Rs 2,50,000 shall exclude the amount of central tax, state tax, UGST, IGST and cess indicated in the invoice. This means, TDS at the rate of 1% has to be deducted on the net value of taxable supplies.
Individual supplies may be less than Rs 2,50,000, but if the total value of supply under a contract is more than Rs 2,50,000, then TDS has to be deducted.
In case of intra-state and inter-state supply, TDS shall be deducted. For intra-state, TDS amount should be deposited as CGST and SGST. For intra-state, TDS amount shall be deposited as IGST.
No TDS under GST on supply of goods and/or services
When the location of the supplier and the place of supply is in a State or Union territory which is different from the state or Union territory of registration of the recipient, then TDS should not be deducted.
Suppose you supplying goods and/or services to M/s XYZ corporation in state A, where you are registered. But M/s XYZ is registered in state B. In such a case, supply takes place in state A, where you are registered, therefore CGST and SGST would be levied. However, if in this case, TDS under GST is deducted and transferred to the electronic cash ledger of the supplier, then it would be difficult. Therefore, TDS will not be deducted in this case. This means, if both supplier and place of supply is different from the state where recipient is registered, no TDS should be deducted.
Time limit to deposit tax and TDS certificate
The amount of TDS deducted under GST must be deposited to the government account by the person who has deducted it (deductor) by the 10th of the succeeding month. For instance, if you have deducted TDS at the rate of 1% from a supplier in the month of January, then it should be deposited on or before 10th February of the same year.
The deductor has to issue TDS certificate to the deducted within 5 days of remittance to government. This means TDS certificate should be issued by the 15th of the succeeding month in which tax has been deducted from the supplier. Such TDS certificate should include contract value, rate of deduction, the amount deducted, amount paid to the government and any other particulars as may be prescribed.
Suppose a supplier makes a supply of taxable goods and/or services worth Rs 10,000 to a recipient for which rate of GST is 18%. In this case, if the recipient is required to deduct TDS under GST, then while making payment to the supplier, 1% of Rs 10,000 has to be deducted as TDS I.e. Rs 100.
Rs 100 shall be deposited in the account of government by the 10th of the succeeding month.
Penalty and interest
When the deductor has not remitted the TDS amount to the government within 10th of the succeeding month for which tax has been deducted, such person liable to pay penal interest for non remittance under section 50. This means for delay in remittance, the deductor has to pay interest in addition to the amount of tax deducted but not remitted. Interest is also required to be paid along with the TDS amount if tax has not been deducted by the recipient.
Return for person required to deduct TDS under GST – GSTR-7
Deductors are required to furnish a monthly return electronically through the common portal in form GSTR-7 on or before 10th of the month succeeding the calendar month in which tax has been deducted at source.
Suppliers can see these credits in part C of the form GSTR-2A on the common portal after deductor file GSTR-7. If a taxpayer has opted for composition scheme, then that person can see these details from the form GSTR-4A. Supplier can take credit in electronic cash ledger register and use it for payment of tax or any other liability.
Late filing of TDS returns will attract a fee of Rs 100 for every day during which such failure continues, subject to a maximum amount of Rs 5,000.
Deductor is is required to issue a certificate in form GSTR-7A to the deductee within 5 days of crediting the amount to the government. TDS certificate contains the details pertaining to value on which tax has been deducted, rate of deduction, amount of tax deducted at source and amount paid to the government.
If the deductor has not furnished TDS certificate to the person from whom tax has been deducted within 5 days of the remittance, such deductor has to pay late fee. From the expiry of the 5th day until the day he furnishes the certificate, the deductor has to pay a late fee of Rs 100 per day. However, such late fee should not exceed Rs 5,000.
In case of excess or erroneous deduction,refund can be claimed by both the deductor or deductee. However, if the amount is already credited to electronic cash ledger, then it shall not be refunded. Amount reflected in electronic cash ledger can be used for payment of tax or any other amount.