TDS @ 2% is required to be deducted on payment made to the supplier of taxable goods or services of both where the value of such supply under a contract exceeds Rs. 2.5 Lakhs.
The provisions of TDS on GST are applicable from 1st Oct 2018 [Notification No. 50/2018 – Central Tax dated 13th Sept 2018].
For the purpose of the computation of the contract value, the following shall be excluded
- Central GST
- State GST
- Union Territory GST
- Integrated GST
Is TDS on GST 1% or 2%?
1% TDS is required to be deducted under both the CGST and the SGST Act and therefore the total TDS to be deducted is 2%. In case of an inter-state transaction, IGST would be levied and 2% TDS would be levied in this case as well.
For example: Suppose a supplier makes a intra-supply i.e. supply within the same state worth Rs. 10,00,000 to a recipient and CGST @ 9% and SGST @9% is required to be paid. The recipient while making the payment of Rs. 10,00,000 to the supplier shall deduct 1% TDS i.e. Rs. 10,000 under the CGST Act and 1% TDS i.e. Rs. 10,000 under the SGST Act and therefore the total TDS Deducted would be Rs. 20,000.
In case the above supplier makes an inter-state supply, TDS @2% i.e Rs. 20,000 would be required to be deducted under the GST Act and deposited with the Govt.
The value for the purpose of computing the amount of TDS shall not include 18% GST.
Purpose of Introduction of TDS on GST
The concept of TDS on GST was initially introduced in the Income Tax Act and has now been introduced in GST as well. The purpose of introduction of TDS on GST is only to enable the govt to have a trail of transactions and to monitor and verify the compliance.
It acts as a powerful instrument to prevent tax evasion and expands the tax net, as it provides for the creation of an audit trail.
Just like in the Income Tax Act, the person deducting the TDS is required to deposit the TDS with the Govt and issue Form 16 and Form 16A, similarly under GST Act as well, the person deducting the TDS would be required to deposit the same with the Govt by the 10th of the next month and issue Form GSTR 7A to the person whose TDS has been deducted.
The concept of TDS under GST is a fairly new concept and has initially been implemented only on a small no. of assessees at a flat rate of 2%. The category of assessees who are required to deduct TDS under the GST Regime are mentioned below.
Who is required to deduct TDS on GST
The following class of persons are required to deduct TDS on GST from the payment made or credited to the supplier if the Contract Value is more than Rs. 2.5 Lakhs:-
- A Department or Establishment of the Central Govt or State Govt
- Local Authority
- Govt Agencies
- Such persons or category of persons notified by the Govt.
The following category of persons have been notified by the Govt on which the provisions of TDS on GST would be applicable:-
- An authority or board or any other body with 51% or more participation by way of equity or control
- Set up by an Act of Parliament or a State Legislature; or
- Established by any Govt.,
- Society established by the Central Govt. or State Govt. or a Local Authority under the Society Regulations Act, 1860
- Public Sector Undertakings
No TDS to be deducted if the payment is made by a person who is not mentioned in the above mentioned list.
Cases where TDS on GST is not required to be deducted
TDS on GST is only required to be deducted where the payment made or credited to the supplier is done by the above mentioned category of persons.
There are certain exceptions to this and in the following cases, TDS would not be deducted even if the payment is made by the above mentioned persons:-
1. Contract Value does not exceed Rs. 2.5 Lakhs
If the Contract Value does not exceed Rs. 2.5 Lakhs, No TDS is required to be deducted.
Eg 1: Mr. Karan Batra enters into a contract of Rs. 2 Lakhs with a Public Sector Undertaking to provide Income Tax Advisory. He also enters into a contract worth Rs. 1.5 Lakhs to provide GST Advisory.
In the above mentioned example – the total value of services provided is Rs. 3.5 Lakhs which is more than Rs. 2.5 Lakhs. However, in this case – the provisions of TDS on GST would not be applicable as the value of each contract is less than Rs. 2.5 Lakhs.
Eg 2: Mr. Karan Batra enters into a single contract to provide services worth Rs. 3 Lakhs. He receives Rs. 1.5 Lakhs as advance on 1st Oct 2018 and the balance Rs. 1.5 Lakhs on 1st May 2019.
The provisions of TDS on GST will get applicable as the contract value is more than Rs. 2.5 Lakhs.
Therefore, while determining the applicability of TDS on GST – it is the individual contract value which would be considered irrespective of the total no. of contracts.
2. Location of Recipient is different from Location of Supplier and Place of Supply
TDS on GST would not be applicable if the Location of Recipient is different from the Location of Supplier and the Place of Supply.
This can be explained with the help of an example.
For eg: Delhi Govt. enters into a contract worth Rs. 5 Lakhs with Radisson Haryana to rent space for the purpose of conducting an event in their hotel. In this case, Radisson hotel will levy Haryana SGST and CGST.
- Place of Supply – Haryana
- Location of Supplier – Haryana
- Location of Recipient – Delhi
The provisions of TDS would not apply in this case irrespective of the contract value as the Place of Supply and Location of Supplier is different from the Location of Recipient.
Eg 2: A vendor registered in Karnataka provides services to the Maharashtra Govt worth Rs. 3 Lakhs. In this case, IGST would be levied.
- Place of Supply – Maharashtra
- Location of Supplier – Karnataka
- Location of Recipient – Maharashtra
The provisions of TDS will apply in this case.
Therefore, while determining the applicability of TDS on GST, it is very important to determine the place of supply. The rules for determination of place of supply are mentioned here with examples:- Rules for Determination of Place of Supply under GST Norms
Deposit of GST TDS and TDS Certificate
The amount of TDS deducted should be deposited with the govt by the deductor by the 10th of the next month in Form GSTR 7 through the online portal gst.gov.in. The deductor would be liable to pay interest if the tax deducted is not deposited within the prescribed time limit as mentioned above.
A TDS Certificate would also be required to be issued by the deductor (the person who is deducting the tax i.e. the recipient) in GSTR 7A to the deductee (the supplier whose payment is being deducted) within 5 days of depositing the TDS with the Govt.
If the TDS Certificate is not issued within 5 days from the date of deposit with the Govt., the deductor would be liable to pay late fees of Rs. 100/ day. However, the late fees levied should not be more than Rs. 5,000.
The TDS so deducted would also be visible to the suppliers in Form GSTR 2A and the supplier can include and avail the same in GSTR 2. The supplier can take this amount as credit in his electronic cash register and use the same for payment of tax or any other liability.
Penalty for not complying with provisions of TDS on GST
|1.||TDS not deducted||Interest to be paid along with the TDS amount; else the amount shall be determined and recovered as per law.|
|2.||TDS Certificate not issued or delayed beyond the prescribed period of 5 days||Late Fee of Rs. 100 per day subject to a maximum of Rs. 5000.|
|3.||TDS Deducted but not paid to the Govt. or paid later than 10th of the succeeding month.||Interest to be paid along with the TDS amount, else the amount shall be determined and recovered as per law.|
|4.||Late filing of TDS Return||Late fees of Rs. 100 per day for each day for which the failure continues subject to a maximum of Rs. 5000.|
Any excess or erroneous amount deducted and paid to the Govt shall be dealt for refund under Section 54. However, if the deducted amount is already credited to the electronic cash ledger of the supplier, the same shall not be refunded.