Under the GST regime we have the basic 3 kinds of taxes. CGST, SGST and IGST. In addition, as per the GST law, certain categories of registered persons will be required to deduct taxes while making payments to supplier i.e TDS and deposit it with the government. Let’s try to understand TDS related procedures under GST.
1. What is TDS?
Tax Deducted at Source (TDS) is one of the ways to collect tax based on certain percentages on the amount payable by the receiver on goods/services. The collected tax is a revenue for the government.
2. Who could be liable to deduct TDS under GST law?
- A department or an establishment of the Central Government or State Government; or
- Local authority; or
- Governmental agencies; or
- Such persons or category of persons as may be notified by the Government.
As per the latest Notification dated 13th September 2018, the following entities also need to deduct TDS-
- An authority or a board or any other body which has been set up by Parliament or a State Legislature or by a government, with 51% equity ( control) owned by the government.
- A society established by the Central or any State Government or a Local Authority and the society is registered under the Societies Registration Act, 1860.
- Public sector undertakings.
3. When will the liability to deduct TDS be attracted? What is the rate of TDS?
TDS is to be deducted at the rate of 2 percent on payments made to the supplier of taxable goods and/or services, where the total value of such supply, under an individual contract, exceeds two lakh fifty thousand rupees. No deduction of Tax is required when the location of supplier and place of supply is different from the State of the registration of the recipient.
4. What are the registration requirements for TDS deductors?
A person who is liable to deduct TDS has to compulsorily register and there is no threshold limit for this. The registration under GST can be obtained without PAN and by using the existing Tax Deduction and Collection Account Number (TAN) issued under the Income Tax Act. Thus it can be said having TAN is mandatory.
5. When and to whom should the TDS be paid?
TDS shall be paid within 10 days from the end of the month in which tax is deducted. The payment shall be made to the appropriate government which means:
- The Central Government in case of the IGST and the CGST
- The State government in case of the SGST
6. What are the provisions relating to the issue of TDS certificates under the GST law?
As in Income Tax Law, here also the person deducting tax has to issue the TDS certificate in form GSTR-7A to the concerned person within 5 days of depositing the tax to the government. Failure to do so will make the person liable to pay a late fee of Rs. 100 per day up to a maximum of Rs. 5000.
7. How will the Value of supply on which TDS shall be deducted be considered?
For the purpose of deduction of TDS, the value of supply is to be taken as the amount excluding the tax indicated on the invoice. This means TDS shall not be deducted on the CGST, SGST or IGST component of invoice.
For Example, Supplier A makes a supply worth Rs. 5000 to B. The rate of GST is 18%. When B pays A, He/She will pay Rs. 5000 (worth of Supply) + Rs 900 (GST) to A and Rs. 100 (RS. 5000*2%) as TDS to the government. So it can be said that TDS is not deducted on the tax element (GST) of a transaction.
8. Which form is required to file the TDS return?
The person deducting tax is required to file a TDS return in form GSTR-7 within 10 days from the end of the month. When GSTIN of the unregistered supplier is not available, their name can be mentioned. The robustness of the system reflects these filled-in details in the electronic ledger of the supplier.
9. What is the benefit of TDS to the deductee (Supplier)?
As stated above, there will an automatic reflection in the electronic ledger of the deductee (supplier) once the deductor files his/her returns. The deductee can claim credit in his electronic cash ledger of this tax deducted and use it for payments of other taxes.
10. How is Refund of TDS possible under GST?
If any excess amount is deducted and paid to the government, a refund can be claimed as this is not the tax amount that the government has a right on.
However, if the deducted amount is already added to the electronic cash ledger of the supplier, the amount so added cannot be got back as a refund by the deductor. Deductee can claim a refund of tax subject to refund provisions of the act.