Introduction
TDS (Tax Deducted at Source) is a well-known concept under the Income Tax Act, but it also plays a significant role in GST compliance. If you are a government department, local authority, or a notified organization, you must deduct TDS under GST when making payments to suppliers.
Feeling confused? Don’t worry! This article explains TDS under GST, when and how to deduct it, and how to show it on an invoice—with a clear example to simplify the process. We will also discuss how businesses can effectively manage GST TDS compliance using automated solutions like CaptainBiz.
What is TDS Under GST?
TDS under GST means Tax Deducted at Source on payments made for taxable goods and services. It is governed by Section 51 of the CGST Act and applies when:
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- The total contract value exceeds ₹2.5 lakh (excluding GST).
- The recipient is a government entity or a notified authority.
- The payment is made to a registered supplier.
- The supply is taxable under GST.
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TDS under GST helps in ensuring tax compliance and transparency by allowing tax authorities to track transactions effectively. The deducted amount is later available as a credit for the supplier, helping in tax reconciliation.
Read More: Integrating E-waybill with GST: Simplifying Tax Compliance for Businesses
Rate of GST TDS
The applicable GST TDS rate is 2%, which is divided as follows:
| Type of Supply | TDS Rate | Breakdown |
|---|---|---|
| Intra-state supply | 2% | 1% CGST + 1% SGST |
| Inter-state supply | 2% | 2% IGST |
Note: TDS is deducted only on the taxable value (excluding GST), not on the total invoice amount.
Example of TDS Deduction on a GST Bill
Let’s assume a government department hires a contractor to provide services. Below is the invoice breakdown:
| Particulars | Amount (₹) |
|---|---|
| Value of Services | 3,00,000 |
| GST @ 18% | 54,000 |
| Total Invoice | 3,54,000 |
TDS Calculation on ₹3,00,000:
| TDS Component | Calculation | Deducted Amount (₹) |
|---|---|---|
| TDS @ 2% | 3,00,000 × 2% | 6,000 |
| CGST TDS | 3,00,000 × 1% | 3,000 |
| SGST TDS | 3,00,000 × 1% | 3,000 |
Payment to Contractor:
| Particulars | Amount (₹) |
|---|---|
| Total Invoice | 3,54,000 |
| Less: TDS Deducted | 6,000 |
| Net Payment Made | 3,48,000 |
TDS Deposit:
The department deposits ₹6,000 under the contractor’s GSTIN. This amount reflects under “TDS Credit Received” in the contractor’s GST portal, allowing them to claim it while filing GST returns.
How to Show TDS in CaptainBiz Invoices
Using a billing software like CaptainBiz, you can effortlessly manage TDS deductions. The software allows you to:
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- Add a TDS deduction line in your invoice or payment voucher.
- Automatically calculate TDS and reflect net payable amounts.
- Track TDS credits under “Reports” or “TDS Ledger.”
- Generate GSTR-7 reports for seamless GST compliance.
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By automating these processes, CaptainBiz helps businesses avoid manual errors, non-compliance issues, and late TDS payments, which can attract penalties.
Important Points to Remember
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- TDS is not required for supplies made by unregistered vendors.
- The recipient must file GSTR-7 to report TDS details.
- The supplier can claim TDS credit in their electronic cash ledger and use it for GST payments.
- Failure to deduct or deposit TDS on time can result in penalties and interest.
- TDS returns must be filed monthly by the deductor to avoid compliance issues.
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Common Mistakes in TDS Under GST and How to Avoid Them
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- Deducting TDS on the GST component – TDS should be deducted only on the taxable value, not on the GST amount.
- Incorrect TDS deposit details – Ensure the correct GSTIN is used while depositing TDS.
- Delayed deposit of TDS – Late deposit can attract penalties and interest.
- Not filing GSTR-7 – This is mandatory for TDS deductors to report the deducted amount.
- Failure to claim TDS credit – Suppliers should regularly check their GST portal for available TDS credits.
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Conclusions
TDS under GST might seem complex, but understanding when and how to deduct it ensures smooth compliance and timely payments. Whether you are a government buyer or a supplier, proper TDS handling is crucial for avoiding tax issues.
At CaptainBiz, we simplify GST compliance with automated billing solutions. Our software ensures accurate TDS calculations, GST-compliant invoicing, and seamless reconciliation—so you can focus on growing your business, not worrying about taxes.
Try CaptainBiz free for 14 days and experience stress-free GST billing today!
FAQ’s
1. Who is required to deduct TDS under GST?
Government departments, local authorities, and certain notified organizations must deduct TDS when making payments for taxable goods and services.
2. At what rate is TDS deducted under GST?
TDS is deducted at 2%—1% CGST + 1% SGST for intra-state supplies or 2% IGST for inter-state supplies.
3. Is TDS deducted on the total invoice amount, including GST?
No, TDS is deducted only on the taxable value of the supply, excluding the GST component.
4. How can a supplier claim TDS credit under GST?
The deducted TDS amount appears under “TDS Credit Received” in the supplier’s GST portal, which can be claimed while filing GST returns.
5. What happens if TDS under GST is not deducted or deposited on time?
Failure to deduct or deposit TDS on time can result in penalties and interest imposed by tax authorities.
6. How does CaptainBiz help in managing TDS under GST?
CaptainBiz automates TDS calculations, adds TDS deductions in invoices, generates GSTR-7 reports, and helps track TDS credits for seamless GST compliance.
