TDS under GST Regime – 9 Most Important Questions Answered. Section No: 51 of CGST/SGST Act, made applicable to IGST vide Section 20 of IGST Act and UTGST vide Section 21 of UTGST Act. The concept of Tax Deduction at Source (TDS) was there in the erstwhile VAT Laws. GST Law also mandates Tax Deduction at Source (TDS) vide Section 51 of the CGST/SGST Act 2017, Section 20 of the IGST Act, 2017 and Section 21 of the UTGST Act, 2017. GST Council in its 28th meeting held on 21.07.2018 recommended the introduction of TDS from 01.10.2018.
Tax deduction at source, TDS under GST Regime
Q1. What is Tax deduction at source?
Ans. Tax deduction at source (‘TDS’) is a mechanism wherein the recipient of goods or services will deduct out of the amount payable to the supplier, an amount at a percentage of value of supply and deposit the same to the account of the Government within the time prescribed.
Q2. What is the rate of TDS?
There are 4 types of taxes in GST – Integrated Tax (IGST), Central Tax (CGST) and State Tax (SGST) / Union territory Tax (UTGST).
The deduction in case of intra-State supply (supply within a State) will be CGST & SGST (in case of Union territory without legislature, it will be CGST & UTGST), and the deduction in case of inter-State supply (supply from one State to another) will be IGST.
Rate of such deduction is @ 2% [i.e. 1% each on CGST & SGST/UTGST component] on the amount paid/credited in respect of intra-State supply & @ 2% [as IGST] on the amount paid/credited in respect of inter-State supply.
Q3. Who is liable to deduct tax at source?
Ans. The Central Government or state Government may mandate the following person to deduct tax at source;
- (a) a department or establishment of the Central or State Government, or
- (b) Local authority, or
- (c) Governmental agencies, or
- (d) such persons or category of persons as may be notified, by the Central or a State Government on the recommendations of the Council.
The following class of persons under clause (d) of section 51(1) of the CGST Act, 2017 has been notified vide notification No. 33/2017 – Central Tax dated 15.09.2017 :-
(a) an authority or a board or any other body,
- (i) set up by an Act of Parliament or a State Legislature; or
- (ii) established by any Government,
with fifty-one percent or more participation by way of equity or control, to carry out any function;
(b) society established by the Central/ State Government or a Local Authority under the Societies Registration Act,1860
(c) public sector undertakings
Q4. Whether person liable to deduct tax, make TDS even if the supplier has charged GST in his invoice?
Ans. Yes, the taxable person shall deduct the tax irrespective of whether GST is charged in the invoice or not.
Q5. What is the threshold limit for tax deduction at source?
Ans. The threshold limit for tax deduction at source is rupees 2.5 Lakh. For the purpose of computation of threshold limit, contract value needs to be considered and not the invoice value or payment amount. However, for the purpose of ascertaining the threshold limit, the value of supply shall be considered as the amount excluding taxes.
Q6. What are the compliances to be adhered to by the deductor and specify the due dates for the same? Ans. The following are the compliances to be adhered to by the deductor and the due dates for the same:
|Payment of TDS
|Issue of Certificate
|The deductor is liable to pay the amount deducted from the supplier to the Government within 10 of the subsequent month
|The deductor is liable to issue Certificate to the deductee within 5 days from the date of payment of tax to the Government
Q7. What will happen if the deductor fails to issue TDS Certificate within the time prescribed?
Ans. If the deductor fails to issue TDS Certificate within the time prescribed, the deductor shall be liable to pay, by way of a late fee, a sum of one hundred rupees per day from the day after the expiry of the five day period until the failure is rectified, subject to a cap of five thousand rupees.
Q8. If the rate of GST on the supply on which TDS is applicable is 18% and TDS @ 1% is made at the time of payment, will the effective rate of tax become 19%?
Ans. No, tax deducted at source by the deductor is available to deductee as credit. Therefore, the deductee will effectively pay tax at only 18% (17% by cash/input tax credit and 1% by utilization of TDS credit).
Q9. Is interest applicable on non-payment of TDS?
Ans. Yes, the deductor shall be liable to pay interest in accordance with the provisions of Section 50 (1) for failure to pay the amount deducted as tax.
Other Important Information
How can the deductee claim benefit of TDS?
- TDS amount deducted & reported in GSTR-7 will automatically reflect in electronic cash ledger.
- The deductee shall claim credit, in his electronic cash ledger, of the tax deducted and reflected in the return of the deductor in the manner prescribed.
Refund of the excess amount deducted
In case the amount is not claimed by deductee in electronic cash ledger:
- Refund to deductor is not possible such case. However, deductee can claim a refund of tax subject to refund provisions of the act. Practically it is not possible to claim any erroneous deduction of TDS by the deductor.
In case the amount is not so claimed by deductee:
- Refund of erroneous excess TDS deducted is possible to deductor, subject to refund provision and procedure of the act.