written by Khatabook | June 9, 2021

Tax Deducted at Source under Goods and Service Tax

What is TDS?

TDS means Tax Deducted at Source. It is the system by which the government ensures the regular collection of tax. It helps in preventing leakage of taxes and helps the deductee in setting it off against his total liability. 

What Is TDS Under GST?

TDS under GST system applies when the receiver of specific goods or services deducts some amount of tax from the total payment to the supplier. This deducted amount is to be paid to the government. 

The Goods and Services Tax law states the list of persons who must deduct tax at the source, the rate of tax and the manner in which it is to be paid to the government.

Who Is Responsible For Deducting Tax At Source Under GST?

  • As per rules of the Goods and Services Tax
    • the Central Government and State Government departments, 
    • government agencies, 
    • local authority, 
    • public sector undertakings, 
    • societies formed by Central/State Government/Local Authority, 
    • a board or any other body established by Act of Parliament/State Legislature/any Government,  

are compulsorily required to deduct TDS under GST before making payment to the supplier.

  • However, TDS under GST is not required to be deducted: 
    • When the supply of goods or services takes place from one public sector undertaking to another. 
    • Also for transactions taking place between Local Authorities / Government Agency / Central / State Government Department, there is no requirement to deduct tax at source.
  • The person who is liable to deduct TDS shall compulsorily have the Tax Deduction and Collection Account Number (TAN) issued under the income tax act. Such a person shall also have GST registration irrespective of their turnover. However, such a person can take registration under GST without PAN.

Also Read: CBDT: No TDS on GST Component

What Are The Transactions On Which TDS Is Required To Be Deducted?

  • Tax is to be deducted at source by the above-mentioned receivers if the total value of goods or services received by them from the supplier, under a single contract, is more than Rs 2,50,000. Thus, even if the value of individual goods or services under the contract is less than Rs 2,50,000 but if the total value exceeds this amount then tax is to be deducted under GST TDS provisions.
  • For calculating the amount of tax, the total value of supply to be taken shall be excluding any tax component of CGST/SGST/IGST or cess. Thus, TDS shall not be deducted on the amount of tax component because it will defeat the purpose of the introduction of GST which is to avoid the problem of levying tax on tax.

Rate Of TDS

Type of Payment

Point of Taxation

Rate of TDS

Payment made or to be made to the supplier of goods or services

More than Rs 2,50,000

2 %

Location of the supplier and place of supply 

In the same State/UT

1% CGST 

1% SGST/UTGST 

Different States/UTs

2% IGST 

 

Also Read: TDS Rate Chart For FY 2021-22

What Are The Situations In Which There Will Be No TDS As Per GST Law?

As per TDS provisions under GST, no TDS is to be deducted, if the place of supply of goods and services and the location of the supplier, are different from the State in which the receiver has taken GST registration. For example, if the supplier is in state A and the place of supply is also in state A, but the receiver is in state B, then in such case TDS is not applicable.

Further as clarified by the GST Council, tax deduction at source (TDS) is not required in the following cases:

  1. No TDS if payment is made to an unregistered supplier.
  2. No TDS in case of transactions that fall under Schedule III of the Central Goods and Service Tax Act, which states the activities or transactions that can neither be treated as supply of goods nor as a supply of services.
  3. When the transaction is such that the tax is to be paid under the reverse charge mechanism by the receiver of goods or services, then the receiver shall not deduct tax at source.
  4. When the supply involves goods on which GST is not applicable such as petrol, diesel, natural gas, aviation turbine fuel, petroleum crude and alcohol for human consumption, then there is no question of tax deduction at source.
  5. If the contract value of taxable supply does not exceed Rs 2,50,000/-, then there is no requirement of TDS. If the contract includes both taxable and exempted supply then tax is to be deducted at source only on the value of taxable supplies included in the contract and that also when such value exceeds Rs 2,50,000/-.
  6. No TDS on receipt of exempted goods and services as notified by the government.

Payment Of Tax Deducted At Source To The Government

The person responsible for deducting the TDS on GST shall pay the amount of tax deducted in a month to the government within 10 days from the end of the month. Simply it can be said that TDS for the month of June shall be paid to the government till the 10th of July, by the deductor. The TDS amount shall be paid to the Central Government (for Integrated Goods and Service Tax and Central Goods and Service Tax) and to the State Government (for State Goods and Service Tax).

TDS Certificate (GSTR 7 and GSTR-7A)

  • A TDS certificate is to be issued by the person who is liable to deduct TDS (receiver of goods or services) to the person to whom the payment is made after reducing the TDS amount (supplier of goods or services). The TDS certificate is to be issued to the supplier within 5 days of payment of tax to the government. 
  • As per the GST law, a TDS certificate is to be issued in the form GSTR-7A. The form GSTR-7A is automatically generated on the GST portal on the basis of GSTR 7 filed by the TDS deductor. It is therefore important that the TDS deductor files TDS return in form GSTR 7 on time. The GSTR-7A is a TDS certificate that is available for both the supplier and the receiver. 
  • Form GSTR-7A includes 
    • TDS certificate number, 
    • Name and GSTIN of the person deducting tax (receiver), 
    • GSTIN of the person whose tax has been deducted (supplier), 
    • The value of supply, rate of TDS, amount of TDS, 
    • The period in which tax is deducted and paid to the government and other information.
  • The TDS certificate helps the government to keep a check whether the amount of tax deducted is correct or not and that the amount of TDS as shown in the TDS return and the amount reflected in the electronic cash ledger are the same. 
  • The process of TDS return and TDS certificate under the Goods and Service Tax system works in the same manner as the process of Income Tax returns and Form 26 AS does in the Direct Tax system. Both facilitate the matching of the amount of tax deducted at source and the amount deposited to the government.

Also Read: Guide For Uploading TDS Returns On The Income Tax Portal

Penalty For Not Furnishing The TDS Certificate On Time

If the person who is liable to deduct TDS does not issue the TDS certificate within 5 days of payment of tax to the government, then such person has to pay Rs 100/- per day as a late fee. The late fee of Rs 100/- per day shall be payable from the expiry of the 5th day from the day on which TDS was paid to the government, till the day on which the TDS certificate is issued. The total amount of the late fee shall not exceed Rs 5000/-.

Interest On Late Payment And Non-payment Of TDS To The Government

As per the TDS provisions under GST, if the person who deducted tax does not pay it to the government within 10 days of the end of the month in which such tax is deducted, he shall be responsible to pay interest at the rate of 18% per annum on the amount of tax not paid or late paid. 

Also if the TDS is not deducted when it was required to be deducted or if the amount deducted is less than the amount which was to be deducted, then a minimum penalty of Rs 10,000/- can be imposed for such non-deduction or short-deduction of TDS.

Input Tax Credit of TDS Amount

The amount of TDS deducted is reflected in the electronic ledger of the person from whose payment the tax has been deducted, that is, the supplier. This amount of TDS is included in the electronic ledger of the supplier only after the TDS return is filed by the deductor (receiver) under Form GSTR-7. The supplier can take credit for this TDS and can use it for payment of other taxes.

Refund of TDS Wrongly Deducted

If the TDS on GST is wrongly deducted where there was no requirement or if the amount of TDS is deducted in excess, then the supplier or deductee can claim the refund of such amount. But if this amount is added to the electronic cash ledger of the supplier, then he cannot get back its refund from the deductor.

Tax Collection at Source (TCS)

Tax Collection at Source (TCS) is also another tax collection system that is applicable to the e-commerce operators like Amazon, Flipkart, Ajio, etc. In this system, the e-commerce operators have to compulsorily collect tax at source (TCS) on the net value of supply made through their digital platform. The requirement to collect tax at source arises only when the e-commerce operator receives payment on behalf of the suppliers for supplies made by them using the digital platform of the e-commerce operator. Here the net value of supply means the total value of taxable supplies made as reduced by the returns, if any, to the suppliers from the customers.

Also Read: Time Limit To Deposit TDS And File TDS Return

Rate of Tax Collection at Source (TCS)

Point of Taxation

Rate of TCS

Supply from one State/UT to another

1%

Supply in the same State/UT

0.5%

 

Conclusion

Hence, TDS provisions under GST are a broader mechanism adopted by the government to avoid tax evasion and bring better transparency in the Goods and Services Tax system. Tax deduction at Source (TDS) under the GST system works in the same manner as it does in the Income Tax. The ultimate goal of TDS under both, the direct and indirect tax system is to ensure that the taxes flow to the government as per the rules and the taxpayers can be easily traced. The TDS procedure under GST also reduces the burden of tax compliance on registered suppliers in case of supplies made by them to the prescribed government authorities.

FAQ's

Is an unregistered person eligible to deduct tax at source (TDS)?

No, only a person having a valid TAN and GST registration number is eligible to deduct tax at source.

Who is responsible to pay tax to the government under GST as per general rule?

Generally, the supplier is responsible to pay GST to the government. However, in special cases, the recipient is liable to pay tax to the government such as in the case of imports, TDS on GST, TCS and reverse charge mechanism.

What is the difference between GSTR-7 and GSTR-7A?

In the Goods and Service Tax (GST) system, Form GSTR-7 is the TDS return filed by the person who is liable to deduct TDS i.e. the receiver. When the TDS return is filed by the receiver, details in it are used by the GST portal to automatically generate Form GSTR-7A which is the TDS certificate and shows the details of tax deducted at source.

Does TDS on GST applicability cover the supply of petroleum?

No, TDS is not applicable on supply of those goods or services which are not covered under the Goods and Service Tax Act. GST is not applicable to petroleum and therefore, the provisions related to TDS under GST are also not applicable on supply of petroleum.

Does the value of supply for calculating TDS include tax and cess?

No, for the purpose of calculating the TDS, the value of supply shall be taken excluding any tax and cess component.

Can TDS be deducted at rates other than the rates specified by the government?

No, the tax deduction at source (TDS) shall be made only at the rate as prescribed by the government, at present, it is 2% TDS on the value of taxable supply.

If I sell my own products through my own website, then am I required to collect tax at source as per the rules of TCS in GST?

No, if a person sells their own product from their own website then provisions of TCS shall not be applicable to them.  

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