Tax Deducted at Source (TDS) under GST

Under the Goods and Services Tax (GST) regime, TDS is required to be deducted at 2% on payments made to suppliers providing taxable goods or services, by specific notified entities. This article provides a detailed overview of TDS under GST, covering the applicable rate, threshold limit, eligibility, required forms, and potential interest or penalties.

Understanding TDS under GST

Tax Deducted at Source (TDS) under GST is a mechanism where a certain percentage is deducted from the payment made by the recipient to the supplier for taxable goods or services. The deducted amount is then remitted to the government as part of its tax revenue.

The legal basis for TDS under GST is provided in Section 51 of the Central Goods and Services Tax (CGST) Act, in conjunction with Rule 66 of the CGST Rules. We provide the best GST services!

Who Must Deduct TDS under GST?

TDS under GST must be deducted by the following entities:

Departments or establishments of the Central or State Governments
Local authorities
Government agencies
Any other persons or classes of persons as may be notified by the government

According to the Notification issued on 13th September 2018, the following entities are also obligated to deduct TDS:

Any authority, board, or body established by Parliament, a State Legislature, or a government, where 51% or more of the equity or control is held by the government
Societies formed by the Central or State Government or a Local Authority and registered under the Societies Registration Act, 1860
Public Sector Undertakings (PSUs)

Liability to Deduct TDS under GST and Applicable TDS Rate

Under GST law, certain notified entities are required to deduct TDS at 2% on payments made to suppliers of taxable goods and/or services. This deduction is applicable only when the total value of the supply under a single contract exceeds ₹2,50,000 (excluding GST).

However, TDS is not required when the supplier’s location and the place of supply are in different states from the state in which the recipient is registered.

How to Calculate TDS on a GST Invoice – Examples

Here are a few scenarios illustrating when TDS applies based on the location of the parties involved:

Scenario	Supplier Location	Place of Supply	Type of GST	Recipient’s State	TDS Applicable	TDS Rate
1	Bangalore	Bangalore	CGST & SGST	Bangalore	Yes	2% (1% CGST + 1% SGST)
2	Bangalore	Chennai	IGST	Bangalore	Yes	2%
3	Bangalore	Chennai	IGST	Delhi	Yes	2%
4	Bangalore	Bangalore	CGST & SGST	Delhi	No	–

TDS is computed based on the contract value excluding GST, and it is deducted at the time of payment or invoice, whichever is earlier.

Example of TDS Deduction under GST

Let’s consider a practical example:

The Railway Department in Karnataka enters into a contract with a supplier, XYZ, to provide anti-corrosion paints worth ₹4,00,000. The applicable GST rate on these goods is 18%.

Contract Value (Excl. GST): ₹4,00,000
GST (18% of ₹4,00,000): ₹72,000
Total Invoice Amount: ₹4,72,000
TDS Applicable on: ₹4,00,000 (excluding GST)
TDS @ 2%: ₹8,000
- CGST (1%): ₹4,000
- SGST (1%): ₹4,000

The supplier, XYZ, will receive the payment after deduction of TDS, i.e.:

Net Payment to Supplier: ₹4,72,000 – ₹8,000 = ₹4,64,000

TDS Deductor Registration Requirements under GST

Any person or entity required to deduct TDS under GST must register mandatorily, regardless of any threshold limit. There is no exemption based on turnover.
Registration can be completed without a PAN, using the existing TAN (Tax Deduction and Collection Account Number) allotted under the Income Tax Act. Hence, having a valid TAN is essential for TDS deductors.

When and Where Should TDS Be Paid?

TDS amounts deducted under GST must be deposited within 10 days following the end of the month in which the deduction was made.
Payment must be made through Form GSTR-7, and the tax should be paid to the appropriate government authority:

For CGST and IGST, payment goes to the Central Government
For SGST, payment must be made to the respective State Government

Issuance of TDS Certificate under GST

In line with the provisions under the Income Tax Act, the GST law also mandates that the deductor must issue a TDS certificate in Form GSTR-7A.
This certificate must be provided to the deductee within 5 days of remitting the TDS to the government.
The GST portal auto-generates GSTR-7A for the deductee once the deductor files Form GSTR-7.

How is the Value of Supply Determined for TDS?

TDS under GST is calculated on the value of supply excluding GST. This means TDS is not deducted on the amount of CGST, SGST, or IGST shown on the invoice.

Example:
If a supplier (A) provides goods worth ₹5,000 to a buyer (B) and GST is applicable at 18%,

Supply Value: ₹5,000
GST Amount (18%): ₹900
Total Invoice Amount: ₹5,900
TDS Deducted: 2% of ₹5,000 = ₹100

So, B pays ₹5,900 to A and remits ₹100 separately to the government as TDS.
This confirms that TDS is only applicable on the taxable value, not on GST.

Which Form is Used to File TDS Returns under GST?

The person who deducts TDS is required to file a return in Form GSTR-7.
This form must be submitted within 10 days from the end of the month during which the tax was deducted.

What is the Benefit of TDS to the Supplier (Deductee)?

One of the key advantages of TDS under GST for the deductee (supplier) is the automatic credit of the deducted amount. Once the deductor files the TDS return, the corresponding amount gets reflected in the electronic cash ledger of the supplier.
The supplier can then utilize this credit to make payments towards other GST liabilities, offering better cash flow management and tax compliance.

Penalties for Non-Compliance with GST TDS Provisions

Failure to comply with TDS rules under GST may lead to interest and penalties. The table below outlines the consequences in various scenarios:

Scenario No.	Description	Penalty/Interest
1	TDS not deducted	Interest at 18% per annum must be paid along with the pending TDS amount. If not, recovery will be made as per legal provisions.
2	Failure to issue TDS certificate or delay beyond 5 days	A late fee of ₹100 per day is applicable under each Act (CGST & SGST), subject to a maximum of ₹5,000 per Act.
3	TDS deducted but not deposited with the government or deposited after the due date (10th of the following month)	Interest at 18% per annum is charged from the day after the due date until the actual date of payment. Non-payment may result in recovery proceedings under the law.
4	Late filing of TDS return	A late fee of ₹100 per day of delay is applicable under each Act, capped at ₹5,000 per Act.

How to Claim a TDS Refund under GST

If an excess TDS amount has been deducted and deposited with the government, the deductor may be eligible to claim a refund, since the excess amount is not tax that is rightfully due.

However, if the deducted TDS amount has already been credited to the deductee’s (supplier’s) electronic cash ledger, then the deductor cannot claim a refund. In such cases, only the deductee can apply for a refund, subject to the refund provisions under the GST law.

Refunds must be filed in accordance with the procedures laid out under the GST Act and Rules, along with relevant documentation to justify the claim.

Frequently Asked Questions (FAQs) on TDS Refund under GST

Q1. Can a deductor claim a refund of TDS deposited under GST?

A: Yes, but only if the deducted amount has not been credited to the supplier’s (deductee’s) electronic cash ledger. Once credited, only the deductee can claim a refund.

Q2. Can a supplier (deductee) claim a refund of the TDS amount?

A: Yes. If the TDS has been credited to the deductee’s cash ledger and is not adjusted against any tax liability, the deductee can claim a refund subject to the applicable refund rules under GST.

Q3. What if the TDS amount was deducted in excess by mistake?

A: The excess amount can be refunded if it has not been transferred to the supplier’s cash ledger. If it has already been transferred, the supplier must claim the refund.

Q4. Which form is used to apply for a TDS refund under GST?

A: The refund application should be filed in Form GST RFD-01, along with supporting documents and explanations for the excess deduction.

Q5. How long does it take to process a TDS refund under GST?

A: Generally, GST refund claims are processed within 60 days from the date of filing a complete application. However, the timeline may vary based on the scrutiny of documents and compliance with the law.