How to Manage TDS Under GST: You Must Know

TDS Under GST. Tax Deduction at Source (TDS) under the Goods and Services Tax (GST) regime is a mechanism aimed at minimizing tax evasion by capturing transaction trails at the source itself. In this article we discuss the concept of TDS under GST, its applicability, rates, compliance requirements, and challenges, providing a thorough understanding of the subject.

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Introduction to TDS Under GST.

TDS (Tax Deducted at Source) under GST is a mechanism whereby the recipient of goods or services is required to deduct a specified percentage of the GST payable to the supplier at the time of making the payment or crediting the supplier’s account. This deducted tax amount is then deposited directly with the government by the recipient, acting as a deductor.

TDS under GST is a crucial component of the GST framework, designed to ensure tax compliance and prevent tax evasion. By collecting a portion of the tax at the source itself, the government aims to mitigate the risk of suppliers failing to deposit the GST collected from their customers.

This system creates a trail of transactions and provides a steady revenue stream for the government, reducing the potential for tax leakages. Additionally, TDS under GST encourages timely payment of taxes by suppliers, as they can claim credit for the deducted tax while filing their GST returns.

This mechanism not only enhances tax collection but also promotes transparency and accountability in the GST regime, ultimately benefiting both the government and compliant taxpayers.

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Applicability of TDS Under GST.

TDS under GST is applicable to specified payments made by specified persons. The categories of individuals and transactions subject to TDS under GST include:

• Government Departments: All government departments, including central and state governments, are required to deduct TDS on payment made to suppliers.
• Local Authorities: Local authorities, such as municipalities and panchayats, are also required to deduct TDS on payment made to suppliers.
• Government Agencies: Government agencies, such as public sector undertakings (PSUs), are required to deduct TDS on payment made to suppliers.
• Societies and Clubs: Societies and clubs, registered under the Societies Registration Act, 1860, are required to deduct TDS on payment made to suppliers.
• Trusts: Trusts, registered under the Indian Trusts Act, 1882, are required to deduct TDS on payment made to suppliers.
• Charitable Institutions: Charitable institutions, registered under the Charitable Endowments Act, 1890, are required to deduct TDS on payment made to suppliers.

TDS Rates Under GST

The rate of TDS under GST is set at 2% (1% CGST + 1% SGST/UTGST or 2% IGST) on payments made to the supplier for taxable supplies of goods or services. The rate is uniform across all states and union territories.

The TDS rates under GST are categorized as follows:

• 2%: For payments made to suppliers registered under GST.
• 5%: For payments made to suppliers not registered under GST.

Compliance Requirements for TDS Under GST.

TDS Deduction Procedure.

The TDS deduction process involves several steps:

1. Identification of Supplier: Confirm the supplier’s registration under GST.
2. Calculation of TDS: Calculate the TDS amount based on the payment.
3. Deduction of TDS: Deduct the TDS amount from the payment.
4. Deposit of TDS: Deposit the TDS amount through the GST portal.
5. Issue of TDS Certificate: Issue a certificate to the supplier detailing the TDS deducted and deposited.

Registration.

Entities liable to deduct TDS under GST must obtain registration by filing Form GST REG-07 on the GST portal. It is mandatory even if the entity is separately registered under GST for other purposes.

Deduction and Payment.

TDS must be deducted at the time of payment or credit to the supplier, whichever is earlier. The deducted amount should be deposited with the government by the 10th of the subsequent month.

Filing Returns.

The deductor is required to file a monthly return in Form GSTR-7 by the 10th of the following month. The return should detail all TDS deductions and deposits made during the month.

TDS Certificate.

The deductor must issue a TDS certificate in Form GSTR-7A to the supplier within five days of depositing the TDS with the government. Failure to issue the certificate within the stipulated time attracts a late fee.

Consequences of Non-Compliance.

Non-adherence to TDS regulations can lead to several penalties:

• Penalty: A fine of Rs. 10,000 for failure to deduct or deposit TDS.
• Interest: An annual interest rate of 18% on the undeposited TDS amount.
• Disallowance of Input Tax Credit: Suppliers may be barred from claiming input tax credit on the TDS amount.

Exemptions from TDS Under GST.

Certain groups are exempt from the TDS mandate under GST, including:

• Individuals: Those not required to register under GST.
• Hindu Undivided Families (HUFs).
• Partnership Firms: Firms with a turnover less than Rs. 20 lakhs.
• Small Businesses: Businesses with a turnover less than Rs. 20 lakhs.

Key Points to Remember.

• TDS under GST is not applicable on the total contract value but only on the portion of the payment exceeding Rs. 2,50,000.
• The value of supply for TDS purposes excludes the GST component.
• TDS under GST is applicable only on taxable supplies. Exempt supplies are not subject to TDS deduction.
• The deductee can claim the TDS amount as credit in their electronic cash ledger.

Challenges and Solutions

Identifying Transactions Subject to TDS

Challenge: Identifying which transactions are subject to TDS can be complex, especially for entities dealing with a large volume of transactions.

Solution: Implementing robust accounting software that automatically flags transactions exceeding the threshold limit and subject to TDS can simplify compliance.

Timely Deposit and Filing.

Challenge: Ensuring timely deposit of TDS and filing of returns can be challenging due to the tight deadlines.

Solution: Automating the TDS deduction and deposit process can help in meeting deadlines. Regular monitoring and reminders can also aid in timely compliance.

Reconciliation Issues.

Challenge: Reconciling TDS credits can be problematic if the details in the supplier’s return do not match with the TDS deducted.

Solution: Regular reconciliation of TDS credits and proactive communication with suppliers to rectify discrepancies can mitigate reconciliation issues.

Example of TDS Calculation.

Note: TDS is calculated on the contract value excluding GST.

TDS Compliance Timeline.

Understanding and adhering to the TDS provisions under GST is crucial for specified persons. By following the guidelines and leveraging technology, entities can ensure compliance, thereby contributing to the nation’s tax compliance framework.

Conclusion

TDS under GST is a critical compliance requirement aimed at curbing tax evasion. While it adds an additional layer of compliance for entities liable to deduct TDS, understanding its applicability, compliance requirements, and challenges can help in seamless adherence to the provisions. With the right tools and processes in place, entities can efficiently manage TDS under GST, ensuring compliance and avoiding penalties.

FAQ:

1. What is TDS under GST?

   • TDS under GST refers to the Tax Deducted at Source mechanism where certain notified entities are required to deduct a percentage of tax from payments made to suppliers of taxable goods and services.

2. Who is required to deduct TDS under GST?

   • Entities such as government departments, public sector undertakings, and certain notified entities are required to deduct TDS when the total value of supply under a contract exceeds Rs. 2.5 lakhs.

3. What is the rate of TDS under GST?

   • The rate of TDS under GST is 2% (1% CGST + 1% SGST or 2% IGST) on payments made to the supplier of taxable goods and services.

4. When should TDS under GST be deposited to the government?

   • TDS deducted under GST should be paid to the government within 10 days from the end of the month in which the deduction is made.

5. Is registration required for deducting TDS under GST?

   • Yes, entities required to deduct TDS under GST must register under GST, irrespective of the threshold limit, and can use their existing Tax Deduction and Collection Account Number (TAN) for this purpose.

6. How is TDS under GST reflected for the supplier?

   • The amount deducted as TDS under GST is reflected in the electronic cash ledger of the supplier once the deductor files the TDS return in Form GSTR-7.

7. What are the penalties for non-compliance with TDS provisions under GST?

   • Penalties may apply for non-compliance, such as late payment or non-filing of TDS returns under GST.

C.K. Gupta

Hello, I am C.K. Gupta owner of Taxgst.in, a seasoned finance professional with a Master of Commerce degree and over 20 years of experience in accounting and finance. My extensive career has been dedicated to mastering the intricacies of financial management, tax consultancy, and strategic planning. Throughout my professional journey, I have honed my skills in financial analysis, tax planning, and compliance, ensuring that all practices adhere to the latest financial regulations. My expertise also extends to auditing, where I focus on maintaining accuracy and integrity in financial reporting. I am passionate about using my knowledge to provide insightful and reliable financial advice, helping businesses optimize their financial strategies and achieve their economic goals. At Taxgst.in, I aim to share valuable insights that assist our readers in navigating the complex world of taxes and finance with ease.