As per law certain registered persons making payment or crediting to the supplier’s account for supply of taxable goods or services or both are required to deduct GST at source. This process is referred to as tax deduction at source or TDS under GST.
In this process, the deductor deducts GST at a specific rate and deposits it with the government while filing GST return. These are statutory compliances certain specified persons should comply with as prescribed by the law.
Who is liable to deduct tax at source under GST?
As per present law, following persons are required to deduct tax at source under GST;
- A department or an establishment of the Central Government or State Government; or
- Local authority; or
- Governmental agencies; or
- An authority or a board or any other body set up by an Act of Parliament or a State Legislature; or established by any Government with 51% or more participation by way of equity or control, to carry out any function;
- Society established by the central government or state government or a local authority under the Societies Registration Act, 1860;
- Public Sector Undertaking
These persons are compulsorily required to take registration as a deductor. No threshold limit is applicable in this case.
When tax shall be deducted at Source under GST
Tax shall be deducted when the total value of taxable goods or services or both under a contract exceeds 2,50,000 INR excluding CGST, SGST, UTGST, IGST and cess indicated in the invoice.
If there are more than one contract and each contract is for supply of taxable goods or services or both and value not exceeding 2,50,000 INR, then no tax shall be deducted.
No tax will be deducted if the location of the supplier and place of supply is in a state or union territory which is different from the state or union territory of the registration of the recipient. For instance, where the location of the supplier is in Bangalore and the palace of supply is in Bangalore and the recipient is registered in Mumbai, no tax shall be deducted.
In case of exempted and Nil rated supply of goods or services or both, tax shall not be deductible.
Rate of TDS on GST
In case of intra-state supply, 1% under CGST and 1% under SGST/UTGST shall be deducted from total value of the taxable supply excluding CGST, SGST, UTGST, IGST and Cess indicated in the invoice.
Intra state supply means supplier, place of supply and recipient are in the same state.
For instance, where the location of the supplier and the place of supply is Bangalore and the recipient is also registered in Bangalore, tax at the rate of 1% under CGST and 1% under SGST shall be deducted.
If the supply is inter-state, which means supplier as well as place of supply are in different states, then 2% under IGST shall be deducted.
For instance, where the location of the supplier is in Bangalore and the place of supply is in Mumbai and the recipient is registered in Mumbai, tax at the rate of 2% under IGST shall be deducted.
Tax deducted shall be deposited with the government within 10 days after the end of the month in which deduction was made.
In case the deductor fails to deposit TDS in time, interest at the rate of 18% will be charged for the delay period. Late fee of Rs 50 per day subject to maximum of Rs 2,000 shall be levied.
Penalty provisions will also be applicable incase of non-deduction, short deduction or non-depositing of tax.
GST return by a person required to deduct tax at source
As a registered person if you are required to deduct tax at source then you must furnish a return in FORM GSTR-7.
After filing the form by the deductor, the deductee can see details on the common portal in FORM GSTR-7A. Deductee will login to the GST portal and accept the TDS reflecting there. After acceptance, TDS will automatically reflect in the deductee’s electronic cash ledger.
Any excess or erroneous deduction can be claimed as refund either by the deductor or deductee, but not both. Deductor can not claim refund once the amount deducted has been credited to the electronic cash ledger of the deductee.
Here are specific sections, rules and notifications relevant to TDS under GST law that you can refer;
- Section 51 of the Central Goods and Services Tax Act, 2017,
- Section 21 of the Union Territory Goods and Services Tax Act, 2017,
- Section 20 of the Integrated Goods and Services Tax Act, 2017, and
- Rule 66 of the Central Goods and Services Tax Rules, 2017.
- Notification No. 33/2017-Central Tax dated 15.09.2017 and Notification No. 50/2018 – Central Tax dated 13.09.2018
- Notification No.61/2018-Central Tax dated 05.11.2018
- Notification No.57/2018-Central Tax dated 23.10.2018
- Notification No.73/2018-Central Tax dated 31.12.2018
