In this article I will explain all details related to TDS under GST Law. Originally, TDS concept is part of the income tax act, where it is required to deduct TDS under different heads like Rent, salary, professional receipt etc. Later in year 2018 it was introduced in GST law.
What is TDS?
TDS is Tax Deducted at Source. TDS is deducted from amount payable by receiver of goods/services to seller. The amount deducted is then deposited with government. TDS is deducted at specified percentage rate.
For Example: Mr. X purchased goods worth Rs. 3 Lac from Mr. Y. Here Mr. X will deduct TDS @2% i.e Rs. 6000 and will pay rest amount Rs. 2.94 Lac.
Why TDS is introduced in GST Law?
As stated above, TDS concept was originally introduced in Income Tax Act, and later introduced in GST. It was quite successful mechanism under which government keeps trails of transaction and it also leads to early generation of revenue to the government.
Though it adds to taxpayer compliance process, like deduction, payment to government, filing return, but at the end it prevent tax evasion and expands the tax bracket.
Hence TDS on GST is introduced from 1st Oct 2018 vide notification no. 50/2018-Central Tax dt. 13th Sept 2018.
What is TDS rats under GST?
TDS @ 2% is required to deduct under GST law on payment made to supplier of services or goods if the payment exceeds Rs. 2.5 Lac.
What are main conditions for deducting TDS under GST?
Below are the three conditions:
- Amount payable must exceeds Rs. 2.5 lac excluding any GST components
- Only notified person are required to deduct TDS under GST. I have explained below, the persons who are liable to deduct tax under GST.
- No TDS is required to deducted if place of supply and location of supplier is different from the geographical location of the recipient.
Example: Research department of U.P Government enter into a contract of Rs. 80 Lac with Agriculture Department of M.P Government to provide agriculture Equipment for R&D purpose. M.P Govement supplies such equipment at M.P only .
Here, Place of supply is M.P
Location of Supplier is M.P
Geographical Location of Recipient is U.P
Since the place of supply and location of supplier is different from the geographical location of the recipient, TDS is not applicable.
Who is liable to Deduct TDS under GST?
- Governmental agencies (govt. institutions.); or
- A department or an establishment of the Central / State Government; or
- Local authority, or
- Any Such persons or category of persons as may be notified by the Government
- Any Public sector undertakings.
- A society established by the Central Govt. or any State Govt. or a Local Authority and the such society must be registered under the Societies Registration Act, 1860.
- An authority or a board or any other body which has been set up by Parliament or a State Legislature , by a government, with 51% equity ( major control) owned by the government.
Last three points was introduced through Notification dated 13th September 2018.
How TDS on GST is calculated?
Let me explain this with example: –
Mr. A sold goods value Rs. 5 Lacs to Mr. B and charged GST @18% on it. The amount payable by Mr. B to Mr. A is Rs. 5.90 Lac.
To check whether TDS is deducted or not, below components are deducted for calculating 2.5 Lac limit.
- Central GST
- State GST
- Union Territory GST
- Integrated GST
Hence 90 thousand is deducted from 5.90 Lac. The balance amount Rs. 5 Lac is still more than 2.5 Lac, hence TDS is deducted @2% on 5 Lac.
Mr. B will pay Rs. 4.90 Lac plus Rs. 90 thousand GST. Total is Rs. 5.80 Lac.
So, Total TDS to be deducted is 2%(1% TDS is required to be deducted under both the CGST and the SGST Act). For inter-state transaction, IGST 2% TDS would be levied under IGST.
Second Example: Suppose a supplier makes a intra-supply ( supply within the same state) worth Rs. 20,00,000 to a recipient and CGST @ 9% and SGST @9% is required to be paid. The recipient while making the payment of Rs. 20,00,000 to the supplier shall deduct 1% TDS i.e. Rs. 20,000 under the CGST Act and 1% TDS i.e. Rs. 20,000 under the SGST Act and therefore the total TDS Deducted would be Rs. 40,000.In case the above supplier makes an inter-state supply, TDS @2% i.e Rs. 40,000 would be required to be deducted under the GST Act and deposited with the Govt.
Note: The value for the purpose of computing the amount of TDS shall not include 18% GST.
GST registration for Deductor?
It is mandatory requirement to register under GST, if you are liable to deduct TDS under GST. Without any turnover limit. You need to register even if you don’t have PAN. You must have TAN ( Tax deduction account number) issued under income tax act.
What is TDS Payment due date under GST?
TDS is deposited with government within 10 days of following month in which TDS is deducted. Form GSTR 7 is used to pay the TDS.
TDS Certificate Under GST
TDS certificate is the proof of TDS deducted, hence it is provided by the deductor to deductee in form GSTR 7A within 5 days of depositing the TDS.
The TDS deducted can also be seen at Form 2A of deductee (supplier), where credit can be taken for this amount for payment of tax.
Late fees for TDS under GST
In Case the TDS Certificate is not issued within 5 days from the date of deposit to the Govt., the deductor would be liable to pay late fees of Rs. 100/ day and maximum fee is Rs. 5000.
TDS on GST Notification
TDS on GST is introduced from 1st Oct 2018 vide notification no. 50/2018-Central Tax dt. 13th Sept 2018.
Hope I have explained everything about the TDS under GST, pls comment for any query.