TDS Provision under GST: Revised Regulatory Norms

Ashish M. Shaji

29 Oct, 2020

Tax deduction at source has been carried forward from existing VAT Laws.  It has been introduced by the Income tax department. It is one of the ways of collecting tax where certain % of amount is deducted by a recipient at the time of making payment to supplier. In this article we shall look at TDS provision under GST.

Who can deduct TDS under GST?

Following Person is Responsible for Tax Deduction at Source:

• All department (state and central government)
• Establishment of state or central government
• Local authority
• Any other government agencies
• Any other such persons or category of persons by the government upon the recommendation from GST Council.

TDS provision under GST: Overview

As we know, TDS is well defined under Income Tax 1961^[1] and the TDS provision has been introduced under the VAT Act by most of the states. There was no TDS applicability under the central excise or service tax. In old Vat Laws, TDS was applicable on works contract only. The TDS rates were different from one state to another. The TDS rate was between 2% to 8% vs. under TDS, a work contract is 1%.

As per the recommendation from the GST council, the deductor is required to deduct tax @ 1% of invoice value or payment made to the supplier. The TDS under GST shall be only applicable in case taxable value of supply or goods or services is more than Rs. 2.5 Lac. The amount which is deducted as TDS shall be deposited by or before 10^th day of the following month.

The dedicator has to file e-return GSTR-7, mentioning contract value, rate of deduction, and the amount paid. The deductor has an obligation under law to provide TDS certificate to deductee within 5 days from the payment of TDS to the government account.

TDS provision under GST: Compliances

• Every deductor has to register with the GST common portal under Section 23 of the GST Act.
• Every deductor should have a TAN number issued by the income tax department
• Mandatory tax payment by 10^th of the following month
• Monthly submission of GSTR-7
• The TDS deposited shall reflect in the electronic cash ledger of the supplier
• The TDS certificate is to be issued within 5 working days

What is the Process of Claiming the Benefit of TDS by the deductee?

The deductee has to file its GSTR-3 or any other monthly GSTR. As per section 34 of the GST Act, the TDS deducted by the recipient of goods or services shall be reported in GSTR-7 by the 10th of the following month and when deducted will file GSTR-2 by 15th of the following month. He will get credit for the amount deducted. He can use TDS credit against set-off of GST liability or claim for refund when there is excess credit.

Nature of certificate to be furnished by deductor to the deductee

 The deductor is required to furnish a certificate in form GSTR-7 A which specifies the contract value, rate of deduction, amount deducted, TDS deposited with the government to the deductee. This certificate should be issued in 5 days of depositing the TDS with the government. In case of failure to do so, the deductor would be liable to pay late fee amounting to 100 rupees and maximum can be 5000 rupees.

Conclusion

In case of excess or erroneous deduction, refund can be claimed by the deductor or by the deductee as per TDS provision under GST. For more information on different types of GST Returns, consider reading our blogs or contact Enterslice.

Read our article:Filing of Form GST ITC-03: All you need to know