The Central Board of Indirect Taxes and Customs (CBIC) has issued a Standard Operating Procedure (SOP) to provide clarity on the applicability and procedures related to Tax Deducted at Source (TDS) under GST.
Under the GST regime, specific categories of registered entities are obligated to deduct tax when making payments to suppliers. The deducted tax must be deposited with the government. Every registered person responsible for deducting TDS must file Form GSTR-7 as a return.
Definition of Supply and Taxable Value under GST
According to the SOP, as outlined in Section 7 of the CGST Act, ‘supply’ includes the provision of goods and services to government departments and other entities classified as liable to deduct TDS under GST.
These designated persons are required to deduct TDS if the contract value for the supply of taxable goods or services (or both) exceeds ₹2,50,000. The value of supply must exclude CGST, SGST, UTGST, IGST, and any applicable cess.
Examples to Illustrate Taxable Value under TDS Provisions:
| Supplier | Scenario | Taxable Supply Value |
|---|---|---|
| A (registered, contract excludes GST) | Supplies goods worth ₹10,000 to a local authority under a contract of ₹10,00,000. GST rate is 18%. | Since the total contract value exceeds ₹2.5 lakh, TDS is applicable. Taxable value: ₹10,000 TDS @1%: ₹100 CGST + ₹100 SGST Net payment after TDS: ₹11,600 (₹11,800 – ₹200) |
| B (registered, contract includes GST) | Supplies ₹10,000 of taxable goods and ₹20,000 of exempt goods under a ₹5,00,000 contract (₹2,20,000 taxable incl. GST and ₹2,30,000 exempt). GST rate is 18%. | The effective value of the taxable supply is ₹1,86,440 (₹2,20,000 × 100/118), which is below ₹2.5 lakh. TDS is not applicable. |
| C (composition taxpayer) | Supplies ₹10,000 of taxable goods under a contract of ₹2,55,000. | As the contract value exceeds ₹2.5 lakh, TDS must be deducted. |
Conditions for TDS Deduction and Applicable Rates under GST
According to the SOP for TDS under GST, tax deduction is mandatory only when all of the following conditions are fulfilled:
- The total taxable value of a supply under a single contract exceeds ₹2,50,000, excluding CGST, SGST, UTGST, IGST, and Cess.
- In cases where a contract involves both taxable and exempt supplies, TDS will be applicable only on the taxable portion—provided that the value of the taxable supply exceeds ₹2.5 lakh.
TDS Rates Based on the Nature of Supply
The table below outlines the applicable tax deduction rates depending on the location of the supplier and the place of supply:
| Nature of Supply | Type of TDS | Rate of Tax |
|---|---|---|
| Supplier and place of supply are in the same State or Union Territory (without a legislature) | CGST | 1% |
| SGST / UTGST | 1% | |
| Supplier and place of supply are in different States | IGST | 2% |
Additionally, tax must also be deducted on any advance payment made to a supplier for the supply of taxable goods or services (or both) from 1st October 2018 onwards.
When TDS Under GST Is Not Applicable
As outlined in the SOP for TDS under GST, there are specific situations where tax deduction at source is not required. These include:
- The taxable value of supply under a single contract does not exceed ₹2,50,000.
- Receipt of exempt goods or services as notified under Notification No. 12/2017 and 2/2017 dated 28.06.2017, as amended.
- Supplies of goods on which GST is not applicable, such as petroleum crude, diesel, petrol, natural gas, etc.
- Transactions that are not considered as supply of goods or services under Schedule III of the CGST/SGST Acts, 2017, regardless of the amount involved.
- If payment is made against a tax invoice dated before 1st October 2018.
- Where the recipient (deductee) is liable to pay tax under reverse charge.
- Payments made to suppliers who are not registered under GST.
- Transactions related solely to Cess amounts.
- If the state/UT of the deductor is not the same as both the location of the supplier and the place of supply.
- Advance payments made before 1st October 2018, even if the invoice was raised afterward.
GST Registration for TDS Deductors
According to Section 24(vi) of the CGST Act, 2017, all TDS deductors must obtain compulsory registration under GST. Existing VAT deductors are not automatically migrated to the GST system. Here’s how a TDS deductor can register:
- Visit the GST portal.
- Go to Services > Registration > New Registration.
- Choose ‘Tax Deductor’ as the applicant type.
- Select the option stating you have (a) PAN and (b) TAN.
- Enter the TAN and select the relevant State and District.
- Provide the Legal Name as per the TAN records.
- Fill in a valid Mobile Number and Email Address.
- Enter the Captcha Code and click Proceed.
- You will receive OTPs on both the mobile number and email ID, which must be entered to continue registration.
OTP Verification and TRN Generation
After entering both OTPs received on the mobile number and email ID, click Proceed.
A Temporary Reference Number (TRN) will be generated. Click Proceed to continue.
Using TRN to Access the Registration Form
- Visit the GST portal.
- Go to Services > Registration > Temporary Reference Number (TRN).
- Enter the TRN and the captcha code, then click Proceed.
TRN-Based OTP Verification
A new OTP will be sent to your registered mobile number and email address. Enter the OTP and click Proceed.
You will be directed to the My Saved Applications page. Click the pen icon under the “Action” column to open the registration form (GST REG-07), which includes the following five sections:
1. Business Details
- Enter office information and select the type of government entity.
- Fields such as legal name, email, and mobile number will be auto-filled.
- Select the appropriate State Jurisdiction from the dropdown menu.
- Click Save to continue.
2. Drawing and Disbursing Officer (DDO) Details
This section includes three parts:
- Part 1: Enter basic details like DDO’s name and mobile number.
- Part 2: Provide the DDO’s designation, PAN, and Aadhaar number.
- Part 3: Add the residential address, upload a photograph, and select the authorised signatory.
- Click Save after completing each section.
3. Authorised Signatory Details
- This section auto-populates with DDO details.
- Click Save and Continue to proceed.
4. Office Address Details
- First part: Enter the office address of the DDO.
- Second part: Provide office contact details.
- Select the nature of possession of the premises and upload valid address proof.
- Click Save and Continue.
5. Verification
- Tick the declaration checkbox.
- Select the name of the DDO from the dropdown.
- Enter the place.
- Choose to sign using either Digital Signature Certificate (DSC) or Electronic Verification Code (EVC).
- Click Proceed.
You will receive a confirmation message, and an acknowledgement slip will be generated, confirming the successful submission of your application.
TDS Payment under GST
The Standard Operating Procedure (SOP) for TDS under GST outlines the procedure for depositing Tax Deducted at Source (TDS). The process is largely similar to that used under the VAT system. Under GST, all functions—registration, payment, and return filing—are carried out through a single unified portal: www.gst.gov.in.
To make a TDS payment, the deductor must:
- Generate a challan on the GST portal.
- Deposit the deducted amount via e-payment methods such as Net Banking, Debit/Credit Card, NEFT/RTGS, or through Over-the-Counter (OTC) using Cash, Cheque, or Demand Draft.
Filing of TDS Return – Form GSTR-7
The SOP further details the return filing requirements:
- Return Form & Deadline: Every registered TDS deductor must file Form GSTR-7 electronically by the 10th of the month following the month in which the tax deduction occurred. Returns can be filed both online and offline.
- If deductions were made on or after 1st October 2018 but before obtaining registration, these must be reported in the first return filed after registration.
Challan Payment and Ledger Update
Once the tax is deposited through the generated challan, the amount will reflect in the electronic cash ledger of the deductor. The deductor will then pay the liability by debiting this cash ledger.
TDS Certificate – Form GSTR-7A
The deductor is also required to issue a system-generated TDS certificate in Form GSTR-7A. This certificate must include:
- Contract value
- Rate and amount of deduction
- Amount paid to the government
The certificate must be provided within 5 days from the date the deducted tax is credited to the government, i.e., within 5 days of filing Form GSTR-7.
TDS Credit for the Deductee
Upon the filing of Form GSTR-7, the deducted amount will appear in the GSTR-2A or GSTR-4A of the deductee. This amount also gets reflected in the electronic cash ledger of the deductee and can be used to offset their GST liabilities.
Late Fee, Interest, and Penalty under GST TDS – As per SOP Guidelines
According to the SOP for TDS under GST, there are two primary situations where late fees may be levied on the deductor:
1. Delay in Filing GSTR-7
If a deductor fails to file the GSTR-7 return within 10 days from the end of the month in which the tax was deducted, a late fee of ₹100 per day is charged under both the CGST Act and the SGST/UTGST Act. This fee continues to accumulate for each day the failure continues.
2. Delay in Issuing TDS Certificate
If the deductor does not issue the TDS certificate to the deductee within five days from the date the deducted amount is credited to the government, a late fee of ₹100 per day is applicable under both CGST and SGST/UTGST Acts, starting from the sixth day onward until the certificate is issued.
Maximum Late Fee Cap
In both the above cases, the total late fee is capped at a maximum of ₹5,000 under the CGST Act and ₹5,000 under the SGST/UTGST Act, bringing the total maximum penalty to ₹10,000 for each type of default.
Frequently Asked Questions (FAQs)
Q1. What happens if GSTR-7 is not filed on time?
A: If GSTR-7 is not submitted within 10 days from the end of the month in which TDS was deducted, a late fee of ₹100 per day is levied under CGST and ₹100 per day under SGST/UTGST. The total penalty is subject to a maximum of ₹5,000 under each Act.
Q2. Is there any penalty for not issuing the TDS certificate on time?
A: Yes. If the TDS certificate (Form GSTR-7A) is not issued within 5 days after depositing the deducted amount to the government, a late fee of ₹100 per day under both CGST and SGST/UTGST applies, capped at ₹5,000 under each Act.
Q3. What is the maximum late fee for delay in filing GSTR-7?
A: The maximum late fee is ₹5,000 under CGST and ₹5,000 under SGST/UTGST, making it ₹10,000 in total.
Q4. Is interest applicable on delayed payment of TDS under GST?
A: Yes. Interest is payable under Section 50 of the CGST Act if there is a delay in depositing the TDS amount to the government. The current interest rate is 18% per annum.
Q5. Can the late fee be waived by the GST authorities?
A: The GST Council may recommend waiving the late fee in certain special circumstances through a notification, but ordinarily, it is automatically levied.
