Thursday, May 25, 2023

A Comprehensive Guide to TDS on GST @ 2% (with Examples)


Tax Deducted at Source (TDS) on Goods and Services Tax (GST) is an important provision introduced by the government to monitor transactions, ensure compliance, and prevent tax evasion. In this comprehensive guide, we will delve into the intricacies of TDS on GST, its applicability, deductions, deposit procedures, and consequences of non-compliance. We will also provide illustrative examples to enhance understanding.

TDS @ 2% on GST: TDS @ 2% is required to be deducted when making payments to suppliers of taxable goods or services if the contract value exceeds Rs. 2.5 Lakhs. The provisions of TDS on GST became effective from October 1, 2018 (Notification No. 50/2018 – Central Tax dated 13th Sept 2018). The following elements are excluded when computing the contract value for TDS purposes:

  1. Central GST
  2. State GST
  3. Union Territory GST
  4. Integrated GST
  5. Cess

TDS Rate: 1% or 2%? The TDS rate is 1% under both the CGST and SGST Acts, resulting in a total TDS deduction of 2%. In the case of inter-state transactions, where IGST is levied, the TDS rate remains 2%. Let's consider an example to understand this better:

Example: A supplier makes an intra-state supply worth Rs. 10,00,000 to a recipient, with CGST @ 9% and SGST @ 9%. In this case, the recipient deducts 1% TDS (Rs. 10,000) under the CGST Act and 1% TDS (Rs. 10,000) under the SGST Act. Hence, the total TDS deducted would amount to Rs. 20,000.

Applicability of TDS on GST: TDS on GST is applicable to the following class of persons who deduct TDS when making payments exceeding Rs. 2.5 Lakhs:

  • Departments or establishments of the Central or State governments
  • Local authorities
  • Government agencies
  • Persons or categories of persons notified by the government

The government has specified the following categories of persons on whom the provisions of TDS on GST would be applicable:

  1. Authorities, boards, or bodies with 51% or more equity or control: a. Established by an Act of Parliament or State Legislature, or b. Established by any government

  2. Societies established by the Central or State governments or a local authority under the Society Regulations Act, 1860.

  3. Public Sector Undertakings

Exceptions to TDS Deductions: TDS on GST is not required to be deducted in the following cases:

  1. When the contract value does not exceed Rs. 2.5 Lakhs.

    • Example 1: If a contract is valued at Rs. 2 Lakhs for Income Tax Advisory and Rs. 1.5 Lakhs for GST Advisory, TDS provisions will not apply since the value of each contract is less than Rs. 2.5 Lakhs.
    • Example 2: If a single contract worth Rs. 3 Lakhs is divided into two payments of Rs. 1.5 Lakhs each, TDS provisions will apply as the total contract value exceeds Rs. 2.5 Lakhs.
  2. When the location of the recipient is different from the location of the supplier and the place of supply.

    • Example 1: If Delhi Government contracts with Radisson Haryana to rent space for an event, and the place of supply and the location of the recipient is Haryana, TDS provisions will not apply.

TDS Deposit and Certificate Issuance: After deducting TDS, the deductor is required to deposit the TDS amount with the government by the 10th of the following month through the GST portal. Failure to deposit TDS within the prescribed time may attract interest liabilities.

The deductor must issue a TDS certificate (Form GSTR 7A) to the deductee within five days of depositing the TDS. Late issuance of the certificate may lead to the payment of late fees.

Claiming TDS Credit and Penalty for Non-compliance: Suppliers can view TDS deductions in Form GSTR 2A and include them in their returns (GSTR 2) to claim credit. Non-compliance with TDS provisions may result in penalties, such as interest on non-deduction or late payment, late fees for delayed issuance of TDS certificates, and late fees for late filing of TDS returns.

Refund of Excess or Erroneous Amounts: Excess or erroneous amounts deducted as TDS can be refunded under Section 54, except when already credited to the supplier's electronic cash ledger.

Conclusion: Understanding the provisions of TDS on GST @ 2% is crucial for businesses and individuals involved in taxable transactions. By following the guidelines, deductors can ensure compliance and contribute to a transparent and efficient taxation system. We hope this comprehensive guide has shed light on the various aspects of TDS on GST, helping you navigate this aspect of GST with confidence.