A Comprehensive Guide to GST TDS in India
What is GST TDS?
Goods and Services Tax (GST) Tax Deducted at Source (TDS) is a mechanism implemented under the GST regime to ensure timely and proper collection of taxes. It is a form of indirect tax collection wherein a specified percentage is deducted by the payer (known as the deductor) from the payment made to the supplier (known as the deductee) for the supply of goods or services.
GST TDS is primarily aimed at improving tax compliance, plugging revenue leakages, and bringing more transparency to transactions between the government and its suppliers.
Who is Liable to Deduct GST TDS?
The provisions of GST TDS apply to certain entities that are required to deduct a percentage of tax before making payments to suppliers. As per the GST law, the following entities are obligated to deduct TDS:
- Government Departments: Both central and state government entities, including local authorities, must deduct GST TDS.
- Government Agencies: Autonomous bodies or institutions established by the government for a specific function.
- Public Sector Undertakings (PSUs): Government-owned companies are liable to deduct TDS.
- Notified Entities: Any entities or bodies notified by the government under the GST law.
Private companies and organizations are generally exempt from GST TDS unless specifically notified by the government.
When is GST TDS Applicable?
GST TDS is applicable only when the following conditions are met:
- Value of the Contract: The total value of the contract (excluding GST and cess) must exceed ₹2.5 lakhs.
- Nature of Supply: GST TDS applies to both goods and services.
For contracts below ₹2.5 lakhs, GST TDS is not applicable, even if the payer is a notified entity.
GST TDS Rate and Calculation
The TDS under GST is deducted at a rate of 2% on the value of taxable goods or services. This 2% is further divided as follows:
- 1% for CGST (Central Goods and Services Tax)
- 1% for SGST (State Goods and Services Tax) or
- 2% for IGST (Integrated Goods and Services Tax) if the supply is interstate.
Here’s a step-by-step guide to calculating GST TDS:
- Determine the taxable value: Exclude GST from the total value of the invoice to find the taxable value.
- Apply the 2% TDS: Deduct 2% on the taxable value (excluding GST).
For example, if the total contract value is ₹3,00,000 (GST inclusive) and GST is ₹40,000, then the taxable value is ₹2,60,000. The TDS deducted will be 2% of ₹2,60,000, which equals ₹5,200.
Due Dates for Depositing GST TDS
The deductor must deposit the TDS amount to the government by the 10th of the following month in which the deduction is made. For instance, if TDS is deducted in September, the tax should be deposited by 10th October.
Late payments or failure to deposit TDS attract interest penalties.
Filing GST TDS Returns
Entities that deduct GST TDS are required to file a return in Form GSTR-7 by the 10th of the following month. GSTR-7 contains details of the TDS deducted and deposited with the government. It must be filed monthly and contains the following information:
- GSTIN of the deductor and deductee.
- Invoice details.
- Amount paid and tax deducted.
- Details of the TDS certificate.
After the return is filed, the deductor must issue a TDS Certificate to the supplier within five days of filing GSTR-7. The certificate contains the details of the transaction, the TDS amount, and the deposit reference.
GST TDS Certificate
Once the TDS return is filed, the deductor is required to issue a TDS certificate to the deductee (supplier) in Form GSTR-7A. This certificate serves as proof of the tax deduction and should be issued within five days of filing GSTR-7.
Failure to issue the TDS certificate on time results in a penalty of ₹100 per day (up to a maximum of ₹5,000).
Impact of GST TDS on the Supplier
For the supplier, the TDS amount deducted by the deductor will be credited to their electronic cash ledger, which can be used to pay future GST liabilities. The amount will reflect in the supplier's GST portal once the deductor files the GSTR-7 return.
Suppliers can use this TDS amount for:
- Offsetting output GST liability.
- Claiming a refund in case of excess balance in the cash ledger.
Penalties for Non-Compliance
Failure to comply with GST TDS provisions can lead to:
- Interest: For late payment or non-payment of GST TDS, interest is charged at 18% per annum.
- Late Fees: Non-filing of GSTR-7 attracts a late fee of ₹100 per day under CGST and ₹100 under SGST, subject to a maximum of ₹5,000.
Conclusion
GST TDS is an important mechanism for ensuring tax compliance and transparency in transactions between the government and suppliers. Deductors must be aware of their obligations to deduct and deposit TDS on time to avoid penalties and ensure smooth business operations. For suppliers, timely compliance ensures that the deducted amount is credited to their cash ledger, aiding in better cash flow management.
To simplify the process, both deductors and suppliers should remain well-informed of the GST TDS rules and adhere to the deadlines for returns and deposits.