Under GST, Tax Deducted at Source (TDS) must be deducted at a rate of 2% on payments made to suppliers of taxable goods and/or services by specific notified entities. This article covers various aspects of TDS under GST, including the applicable TDS rate, deduction limits, applicability, required forms, and associated interest and penalties.
Latest Updates
23rd July 2024
In the Union Budget 2024, the Finance Minister announced that TDS deductors must file a return every month under Section 39 of the CGST Act, regardless of whether any deductions were made during the month. Additionally, an enabling clause will be introduced to prescribe the time limit for filing these returns.
It has also been clarified that a person registered solely for the purpose of deducting TDS under Section 51 of the CGST Act is considered not registered under clause (f) of Section 31(3) of the same Act. Consequently, such deductors are not required to issue a self-invoice. This notification is pending from the CBIC.
Understanding TDS under GST
Tax Deducted at Source (TDS) is a method for collecting tax on payments made for goods and services, collected at specified rates and contributing to government revenue.
TDS under GST is governed by Section 51 of the CGST Act and detailed in CGST Rule 66.
Who is Required to Deduct TDS Under GST?
- Departments or establishments of the Central or State Governments
- Local authorities
- Government agencies
- Other persons or categories as notified by the Government
According to the notification dated 13th September 2018, TDS must also be deducted by:
- Entities with at least 51% government ownership, established by Parliament, State Legislature, or government.
- Societies formed by the Central or State Government or Local Authorities under the Societies Registration Act, 1860.
- Public sector organizations.
TDS Deduction Rates and Conditions
- TDS is levied at 2% on payments to suppliers of taxable goods and/or services when the contract value exceeds Rs. 2,50,000.
- TDS is not applicable if the supplier’s location and the place of supply differ from the recipient’s State of registration.
Liability to deduct TDS under GST and TDS rate
TDS is to be deducted at the rate of 2% on payments made to the supplier of taxable goods and/or services, where the total value of such supply, under an individual contract, exceeds Rs.2,50,000. No deduction of Tax is required when the location of supplier and place of supply is different from the State of the registration of the recipient.
Here are the scenarios explaining TDS applicability:
| Scenario | Location of supplier | place of supply | Type of GST | Place of recipient | TDS applicability | TDS % |
| 1 | Bangalore | Bangalore | CGST & SGST | Bangalore | Yes | 2% (1% + 1%) |
| 2 | Bangalore | Chennai | IGST | Bangalore | Yes | 2% |
| 3 | Bangalore | Chennai | IGST | Delhi | Yes | 2% |
| 4 | Bangalore | Bangalore | CGST & SGST | Delhi | No | – |
Registration Requirements for TDS Deductors
Individuals or entities required to deduct TDS must register for GST without any minimum threshold. Registration can be completed using the existing Tax Deduction and Collection Account Number (TAN) issued under the Income Tax Act, making TAN a mandatory requirement.
When and To Whom Should TDS Payments Be Made?
TDS payments must be made within 10 days following the end of the month in which the tax was deducted. These payments should be filed using Form GSTR-7 and sent to the appropriate government authority:
- The Central Government for IGST and CGST
- The State Government for SGST
TDS Certificate Requirements under GST
Under GST regulations, akin to the Income Tax Law, tax deductors must issue a TDS certificate in Form GSTR-7A to the recipient within 5 days of depositing the tax with the government. Form GSTR-7A will be automatically available to the deductee through the GST portal, based on the GSTR-7 filed.
How is the Supply Value for TDS Determined?
The value of supply for TDS purposes is calculated excluding the tax amount on the invoice. Hence, TDS is not deducted from the CGST, SGST, or IGST components.
For instance, if Supplier A provides goods valued at Rs. 5,000 to Buyer B, with an 18% GST rate, Buyer B pays Rs. 5,000 (supply value) + Rs. 900 (GST) to Supplier A and Rs. 100 (Rs. 5,000 × 2%) as TDS to the government. Consequently, TDS is not applied to the GST component.
Required Form for TDS Return
TDS returns must be filed using Form GSTR-7 within 10 days from the end of the month in which the tax was deducted.
Advantages of TDS for the Deductee (Supplier)
After the deductor files their returns, the TDS amount is automatically updated in the deductee’s (supplier’s) electronic ledger. The supplier can then claim this credit in their electronic cash ledger and apply it towards other tax payments.
Penalties for Non-Compliance with GST TDS Regulations
The table below details the penalties for not adhering to GST TDS provisions:
| Scenario No | Scenario | Penalties |
| 1 | TDS not deducted | Interest is to be paid @ 18% along with the TDS. Otherwise, the amount shall be determined and recovered as per the provisions of the law. |
| 2 | TDS certificate has not been issued or delayed beyond 5 days | A late fee of Rs.100 per day will be charged (subject to a maximum of Rs.5000) under each Act. |
| 3 | TDS is deducted but not paid to the government or paid after the 10th of the following month | Interest is to be paid @ 18% along with the TDS, calculated beginning from the next day of the return filing deadline until the actual date of payment. Otherwise, the amount shall be determined and recovered as per the provisions of the law. |
| 4 | Late filing of TDS return | A late fee of Rs.100 per each day of delay will be charged (subject to a maximum of Rs.5000) under each Act. |
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