Tax Deducted at Source (TDS) under the Goods and Services Tax (GST) regime is a fundamental concept in India’s taxation system. It was introduced to ensure that the government collects taxes at the source of income, thus preventing tax evasion and promoting transparency in financial transactions.
Under GST, TDS is applicable to certain registered individuals, and it mandates them to deduct a specific percentage of the tax when making payments to suppliers or service providers. This deducted amount is then remitted to the government on behalf of the supplier. The main objective of TDS under GST is to streamline the tax collection process and curb tax evasion.
Significance of TDS under GST
The significance of TDS under GST cannot be overstated. It plays an important role in maintaining the integrity of the taxation system and has several key benefits:
- Enhanced Tax Compliance: TDS ensures that taxes are deducted at the source, leaving little room for tax evasion. This results in increased tax compliance and revenue for the government.
- Reduces Tax Evasion: By deducting tax at the source, GST TDS reduces the chances of suppliers underreporting their income or evading taxes.
- Efficient Revenue Collection: TDS streamlines the process of tax collection, making it more efficient and ensures that the government receives their due share of taxes promptly.
- Transparency: It enhances transparency in financial transactions, as all TDS-related information is recorded and reported to the tax authorities.
- Eases the Burden on Suppliers: While suppliers may initially see TDS as an additional compliance requirement, it simplifies their tax obligations, as they don’t need to worry about collecting and remitting the deducted tax themselves.
Understanding Standard Operating Procedure (SOP) for TDS under GST
The Standard Operating Procedure for TDS under GST is a set of guidelines issued by the Central Board of Indirect Taxes and Customs. These guidelines provide clarity on various conditions of TDS applicability and the TDS deduction procedure to be followed. Let’s break down the key components of the SOP:
- Applicability: The SOP defines which categories of registered individuals are required to deduct TDS under GST.
- Return Filing: It outlines the requirement for every registered person deducting TDS under GST to file a return in Form GSTR-7.
- Concept of Supply: The SOP elaborates on what constitutes a supply under GST for the purpose of TDS. It includes goods and services supplied to government departments and other entities liable to deduct TDS.
- Threshold Value: The SOP specifies the threshold value for TDS applicability. If the total value of supply under a single contract exceeds Rs. 2,50,000, TDS is required.
Registration and Compliance
Registration as a TDS deductor under GST is an important step to ensure GST compliance. Here’s a step-by-step explanation of the registration process:
- Entering User Credentials: To begin the registration process, visit the official GST portal. Navigate to the ‘Services’ tab & select ‘Registration,’ then choose ‘New Registration.’ Indicate that you are a ‘tax deductor’ and specify whether you have a PAN or TAN (Tax Deduction and Collection Account Number). Enter your TAN if applicable, along with your state and district.
- Legal Name: Provide your legal name as per your TAN registration, and include your mobile number and email address.
- OTP Verification: The system will send two One-Time Passwords (OTPs), one to your mobile number and one to your email address. Enter both OTPs as prompted.
- Temporary Reference Number (TRN): Upon successful OTP verification, a Temporary Reference Number (TRN) will be generated. Keep this number for the next steps.
- Filling up the Registration Form: Access the GST portal again and select ‘TRN.’ Enter your TRN and the captcha code, then proceed. Complete the registration form, which includes details about your office, governance type, and more. Some fields, such as email and legal name, will be auto-populated. Additionally, you will need to choose your state jurisdiction from a drop-down menu and click ‘Save.’
- Drawing and Disbursing Officer (DDO) Details: This section requires entering basic information about the DDO, including their name and contact details. You will also need to input their designation, PAN, Aadhaar information, residential address, and upload a photograph. Select the authorised signatory and click ‘Save.’
- Authorised Signatory Details: Confirm and save the details of the authorised signatory.
- Office Address Details: Provide the DDO’s office address details and contact information, including the nature of possession. Upload an address proof and click ‘Save.’
- Verification: Tick the verification check-box and select the DDO’s name. Choose the signing option, either with a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC). Click ‘Proceed’ to submit the application successfully.
TDS Rates and Applicability
| Type of Supply | TDS Applicable | Tax Rate |
| The supplier’s location and the place of supply are in the same state/UT without legislature. | CGST
SGST/ UTGST |
1%
1% |
| Supplier’s location and the place of supply are in different states. | IGST | 2% |
Understanding the rates at which TDS is to be deducted and the conditions for its applicability is important. Here’s a detailed breakdown:
- Threshold Value: TDS is required to be deducted if the total taxable value of a supply under a single contract, exceeds Rs. 2,50,000, excluding Central tax, State tax, Union Territory tax, Integrated tax, and Cess.
- Contract Type: If a contract includes both taxable and exempted supplies, TDS will be deducted only on the total value of taxable supply if it exceeds Rs. 2,50,000.
- Rate of Tax Deduction: The rate of TDS varies based on the location of the supplier and the place of supply. If both are in the same state or Union Territory without a legislature, Central GST (CGST) and State GST (SGST) or Union Territory GST (UTGST) are applicable at a rate of 1% each. If the supplier’s location and place of supply are in different states, Integrated GST (IGST) is applicable at a rate of 2%.
- Advance Payment: TDS must be deducted on advance payments made to a supplier for taxable goods or services on or after 1st October 2018.
TDS Deduction Process
The actual TDS deduction procedure under GST involves several steps:
- Identification of Taxable Supply: Determine whether the supply is taxable and exceeds the threshold value of Rs. 2,50,000 under a single contract.
- Calculation of TDS Amount: Calculate the TDS amount based on the applicable rate and the value of the taxable supply.
- Deduction from Payment: Deduct the calculated TDS amount from the payment to the supplier.
- Record Keeping: Maintain detailed records of TDS deductions, including the contract value, rate of deduction, and amount deducted.
These steps ensure that TDS is deducted correctly and in compliance with GST regulations.
Documentation and Record-keeping
Proper GST TDS documentation and record-keeping are essential for GST compliance. Here’s what you need to keep track of:
- Invoices: Maintain copies of invoices related to the taxable supplies for which TDS is deducted.
- TDS Certificates: Provide system-generated TDS certificates to the deductees, including contract details, deduction rate, deducted amount, and amount paid to the government. These certificates should be given within five days of filing the return.
- GST Returns: Keep records of GST TDS returns filed, including Form GSTR-7, which reports TDS-related information.
- Payment Records: Maintain records of tax payments made to the government after deducting TDS.
- Contract Details: Keep detailed records of contracts, including contract values and taxable supply amounts.
Comprehensive GST TDS documentation ensures that you can readily demonstrate compliance with TDS requirements if audited by tax authorities.
Procedural Aspects of TDS under GST
TDS under GST involves various procedural aspects that must be understood and followed:
- Tax Deduction Conditions: TDS is required when the total taxable value of a supply exceeds Rs. 2,50,000 under a single contract, excluding specific taxes.
- Exempted Supplies: TDS is not applicable to goods or services that are exempted or on which GST is not leviable, such as petrol, diesel, petroleum crude, natural gas, etc.
- Reverse Charge: In case the recipient is liable to pay tax under reverse charge, TDS is not deducted.
- Unregistered Suppliers: TDS is not deducted on payments made to unregistered suppliers.
- Cess: TDS does not apply to payments related to the ‘Cess’ component.
- Inter-State Transactions: Different rules apply when the state or Union Territory of the deductor differs from the location of the supplier and the place of supply.
Role of Deductor and Deductee
Understanding the roles and responsibilities of both the deductor (the entity deducting TDS) and the deductee (the entity from whom TDS is deducted) is essential for smooth TDS compliance:
- Deductor Responsibilities: The deductor is responsible for correctly identifying taxable supplies, calculating and deducting TDS as per the applicable rates, maintaining accurate records, and filing GST TDS returns in Form GSTR-7 within the specified time frame.
- Deductee Rights: The deductee has the right to receive a system-generated TDS certificate (Form GSTR-7A) from the deductor, indicating the contract details, deduction rate, and deducted amount. The deductee can also claim credit for the TDS amount in their GST returns. This process is part of the deductee rights, ensuring transparency and accountability in tax deductions and credits.
Understanding these roles helps ensure that both parties fulfil their obligations under the TDS provisions of GST.
Impact on Business and Economy
The implementation of TDS under GST has far-reaching implications for businesses and the broader economy:
- Business Compliance: Businesses need to adapt their processes to comply with TDS requirements, which may involve changes in GST TDS documentation, record-keeping, and payment procedures.
- Increased Transparency: TDS promotes financial transparency and accountability by requiring proper reporting and record-keeping.
- Government Revenue: TDS ensures that the government receives tax revenue promptly and accurately, aiding in budget planning and public service provision.
- Reduced Tax Evasion: TDS minimises the scope for tax evasion, contributing to fairer taxation and a level playing field for businesses.
- Impact on Cash Flow: Both deductors and deductees need to manage cash flows effectively, taking into account TDS deductions and credits.
Understanding the broader implications of TDS on business and the economy is essential for informed decision-making.
Recent Updates and Amendments
While there have been no significant amendments lately, concerning TDS provisions under GST, it’s important to check regularly and stay informed about:
- Regulatory Changes: Keep a track of changes in TDS rates, thresholds, or procedural requirements introduced by the government.
- Compliance Updates: Stay updated on the latest compliance guidelines and deadlines related to TDS under GST.
- Industry Impact: Understand how recent changes may impact your specific industry or sector.
Regularly monitoring updates and amendments ensures that you remain compliant with the most current TDS regulations.
Case Studies and Examples
Scenario: TDS on Consultancy Services
| Details | Values |
| Total Contract Value | Rs. 5,00,000 |
| Applicable GST Rate | 18% |
| TDS Rate (IGST for inter-state transaction) | 2% |
| TDS Amount | Rs. 10,000 |
| Payment to ABC Consultants after TDS deduction | Rs. 4,90,000 |
Explanation:
- Total Contract Value exceeds Rs. 2,50,000, making TDS applicable.
- TDS Amount = Total Contract Value * TDS Rate = Rs. 5,00,000 * 2% = Rs. 10,000.
- XYZ Pvt. Ltd. deducts Rs. 10,000 as TDS from the payment to ABC Consultants.
- XYZ Pvt. Ltd. provides a TDS certificate (Form GSTR-7A) to ABC Consultants.
- ABC Consultants receives Rs. 4,90,000 after TDS deduction procedure.
- ABC Consultants can claim credit for the TDS amount in their GST returns.
This table summarises the TDS calculation and its impact on both the deductor (XYZ Pvt. Ltd.) and the deductee (ABC Consultants).
Conclusion
In conclusion, mastering TDS compliance under GST is crucial for both businesses and individuals. It helps ensure that taxes are collected accurately, promotes transparency, and contributes to a fairer tax system. By gaining a thorough understanding of TDS, following the required registration steps, and staying informed about any updates, you can confidently manage TDS under GST.
Also Read: FAQs on TDS under GST
Also Listen: TDS Liability under GSTR-7: A Comprehensive Guide for Businesses
Frequently Asked Questions (FAQs)
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What is TDS under GST?
TDS under GST stands for Tax Deducted at Source under the Goods and Services Tax regime. It’s a mechanism where tax is deducted by the payer while making payments to suppliers, and the deducted amount is deposited with the government.
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Who is responsible for TDS compliance under GST?
The deductor, the entity making payments to suppliers, is responsible for complying with TDS provisions under GST.
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What are the key documents required for GST TDS compliance?
Essential GST TDS documents include invoices, TDS certificates, and Form GSTR-7 for GST TDS returns.
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What are TDS non-compliance consequences under GST?
Non-compliance with TDS provisions can result in penalties, late fees, and legal TDS non-compliance consequences as outlined in the GST law.
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What are deductee rights in the TDS process?
The deductee has the right to receive a TDS certificate (Form GSTR-7A) from the deductor, which includes details of the deduction and can be used for claiming tax credits.
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How often should TDS returns (Form GSTR-7) be filed under GST?
GST TDS returns (Form GSTR-7) must be filed electronically within the 10th of the month following the month in which deductions were made.
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What are the responsibilities of a deductor under GST TDS provisions?
Deductor responsibilities include accurately identifying taxable supplies, deducting TDS at the prescribed rates, maintaining records, and filing TDS returns on time.
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Is TDS applicable regardless of the transaction value?
No, TDS is applicable when the total taxable value of a supply under a single contract exceeds Rs. 2,50,000, excluding certain taxes. Transactions below this threshold are exempt from TDS under GST.
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Is TDS applicable to all types of transactions under GST?
No, TDS is applicable primarily to payments made for taxable goods and services. It does not apply to transactions involving exempted supplies, non-GST supplies, or certain specified categories.
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How can a deductor rectify errors in TDS returns filed under GST?
If a deductor identifies errors in their GST TDS returns, they can rectify them by filing a revised TDS return within the prescribed time frame. It’s important to ensure accurate reporting to avoid GST compliance issues.
