Tax Deducted at Source (TDS) under GST: Key Insights
Dive deep into the essentials of TDS under Goods and Service Tax, its implications, compliance, and recent updates to stay ahead in the taxation landscape.
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Created: 14th July, 2025 7:32 AM, last update:14th July, 2025 7:32 AM
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Introduction to TDS under GST
Tax Deducted at Source (TDS) is a crucial component of the Goods and Services Tax (GST) framework in India. It mandates that a certain percentage of tax is deducted from payments made to suppliers of taxable goods and services. The TDS mechanism is aimed at ensuring tax compliance and enhancing government revenue through an efficient collection method. This article will explore the various facets of TDS under GST, including applicable rates, who is liable to deduct it, and more.
Latest Developments in TDS under GST
Recent Updates
January 10, 2024: The Finance Minister introduced a requirement for TDS deductors to file returns monthly under Section 39 of the CGST Act, regardless of deductions in that month. It was clarified that entities registered solely for TDS deduction under Section 51 are treated as unregistered under certain clauses of Section 31(3) of the Act, negating the need for self-invoicing.
July 10, 2024: The CBIC issued CGST Notification No. 12/2024, updating the GSTR-7 return format to facilitate invoice-level reporting. Taxpayers are now required to detail the invoice/document specifics, including amounts paid to deductees, TDS amounts, transaction values, and GST details.
What is TDS under GST?
TDS under GST is designed to collect tax at the source, where the receiver must deduct tax from payments made to suppliers. This provision is governed by Section 51 of the CGST Act and is supplemented by Rule 66, setting the groundwork for effective tax collection.
Who Needs to Deduct TDS?
Certain entities are mandated to deduct TDS under GST, including:
- Central or State Government departments and establishments
- Local authorities and governmental agencies
- Any persons or categories specified by the Government
Recent notifications also include:
- Authorities or boards established by Parliament or State Legislatures with majority government ownership.
- Societies registered under the Societies Registration Act, 1860, by the Central or State Government.
- Public sector enterprises.
TDS Deduction Rate and Liability
The TDS rate under GST is set at 2% for payments exceeding ₹2,50,000 made to suppliers of taxable goods and services. However, TDS is not applicable if the supplier's location differs from the recipient's state of registration.
Practical Scenarios of TDS Application
Consider the following scenarios to understand TDS applicability:
Scenario 1:
- Supplier Location: Bangalore
- Place of Supply: Bangalore
- GST Type: CGST & SGST
- TDS Applicability: Yes, at 2% (1% each for CGST and SGST)
Scenario 2:
- Supplier Location: Bangalore
- Place of Supply: Chennai
- GST Type: IGST
- TDS Applicability: Yes, at 2%
Scenario 3:
- Supplier Location: Bangalore
- Place of Supply: Chennai
- GST Type: IGST
- TDS Applicability: Yes, at 2%
Scenario 4:
- Supplier Location: Bangalore
- Place of Supply: Bangalore
- GST Type: CGST & SGST
- TDS Applicability: No
Example Calculation of TDS
For a contract valued at ₹4,00,000 with an applicable GST rate of 18%:
- GST Amount: ₹72,000 (18% of ₹4,00,000)
- Total Invoice Value: ₹4,72,000
- TDS Calculation: ₹8,000 (2% of ₹4,00,000)
- Net Payment to Supplier: ₹4,64,000 (after TDS deduction)
Registration for TDS Deductors
All entities liable to deduct TDS must register for GST, with no minimum threshold for compliance. Registration can be accomplished without a PAN using the existing Tax Deduction and Collection Account Number (TAN) from the Income Tax Act. For more details on the registration process, you can refer to our guide on registering a private limited company in India.
Payment and Filing of TDS
TDS amounts must be paid within 10 days following the month in which the deduction occurred and reported through Form GSTR-7. Payments should be made to the appropriate government:
- Central Government: for IGST and CGST
- State Government: for SGST
Issuance of TDS Certificates
As per GST provisions, the deductor must provide TDS certificates using Form GSTR-7, similar to practices in Income Tax Law. This ensures transparency and proper documentation of TDS deductions. For further insights on compliance, consider exploring our article on MSME registration process in India.
Conclusion
Understanding the nuances of TDS under GST is essential for compliance and effective tax management. Keeping abreast of updates and adhering to the legal framework will aid businesses in navigating the complexities of the GST ecosystem.
Frequently Asked Questions
What is Tax Deducted at Source (TDS) under GST?
Tax Deducted at Source (TDS) under GST is a mechanism where a certain percentage of tax is deducted from payments made to suppliers of taxable goods and services. This system is designed to enhance tax compliance and streamline the collection process by ensuring that tax is collected at the source of payment. Governed by Section 51 of the CGST Act, TDS aims to improve government revenue while simplifying the tax collection process. If you're involved in transacting goods and services under GST, understanding TDS is crucial for ensuring compliance and accurate tax reporting.
Who is required to deduct TDS under GST?
Certain entities are mandated to deduct TDS under GST, including Central or State Government departments, local authorities, and other specified persons. This includes public sector enterprises and boards established by Parliament or State Legislatures with majority government ownership. Additionally, societies registered under the Societies Registration Act, 1860, by the Central or State Government also fall under the category of TDS deductors. If your organization falls into any of these categories, you need to ensure that you are compliant with the TDS provisions under GST.
What is the TDS deduction rate under GST?
The TDS rate under GST is set at 2% for payments exceeding ₹2,50,000 made to suppliers of taxable goods and services. This 2% is typically split between 1% for Central Goods and Services Tax (CGST) and 1% for State Goods and Services Tax (SGST) when both the supplier and recipient are in the same state. In cases where the supplier is in one state and the recipient in another, Integrated Goods and Services Tax (IGST) applies, and the TDS is still 2%. It’s important to be aware of these rates to ensure accurate deductions and compliance.
How do I calculate TDS for a contract under GST?
To calculate TDS for a contract under GST, first determine the total value of the contract. For example, if the contract is worth ₹4,00,000 and the applicable GST rate is 18%, the GST amount would be ₹72,000 (18% of ₹4,00,000). The total invoice value would then be ₹4,72,000. The TDS, set at 2%, would be ₹8,000 (2% of ₹4,00,000). Finally, the net payment to the supplier after deducting TDS would be ₹4,64,000. Always ensure to keep track of these calculations for proper accounting and compliance.
What are the compliance requirements for TDS deductors?
TDS deductors under GST must register for GST, and there's no minimum threshold for compliance. Registration can be done using the Tax Deduction and Collection Account Number (TAN) from the Income Tax Act. Once registered, TDS amounts must be paid within 10 days following the month in which the deduction took place. Furthermore, TDS must be reported through Form GSTR-7, which details the TDS amount deducted and the invoices involved. Keeping up with these requirements is key to avoiding penalties and ensuring smooth operations.
How and when do I issue TDS certificates?
As a TDS deductor, you are required to issue TDS certificates using Form GSTR-7. This process is similar to practices in Income Tax Law and ensures that the deductee has proper documentation of the TDS deducted. It's important to provide these certificates after the TDS has been deducted and reported, and they should be issued promptly to maintain transparency and compliance. Staying organized with your documentation helps build trust with your suppliers and can ease any potential disputes regarding deductions.
What are the recent updates regarding TDS under GST?
Recent updates regarding TDS under GST include the requirement for TDS deductors to file returns monthly, regardless of whether deductions occurred in that month, as introduced on January 10, 2024. This change aims to streamline compliance and reporting. Additionally, on July 10, 2024, the CBIC updated the GSTR-7 return format to mandate invoice-level reporting. This means that taxpayers must now provide specifics about invoices, including amounts paid to deductees and TDS amounts, enhancing transparency in transactions and ensuring that all parties are accurately informed.
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