What is TDS mechanism means under GST?
Tax Deduction at Source (“TDS”) means a person making payment or crediting to the supplier’s account for supply of taxable goods or services or both is required to deduct GST at source if the contract value without taxes exceeds Rs 250000.
A person, called deductor, making payment or giving credit deducts an amount at a fixed rate and deposits it with GST department. The deductee can take credit of deduction at source in his Electronic Cash Ledger.
When the total value of taxable goods or services or both, under a contract, exceeds Rs 2,50,000 GST TDS needs to be deducted.
Example – M/s Tigers Ltd entered into 2 contracts for supply of goods to PSU valued Rs 2,30,000 and Rs 2,40,000. No tax will be deducted as each taxable supply under a contract is not exceeding Rs 2,50,000.
Another example – M/s Kishore Ltd have supplied Printed material valued at Rs 2,30,000 along with Books valued at Rs 1,00,000 to Government department and a tax invoice has been raised for Rs 3,10,000 plus applicable GST. In this case, tds shall not be deductible as taxable value of goods is less than the threshold limit of Rs 2,50,000 (Books are exempted items)
Value on which tds is deducted – Amount indicated in the invoice excluding the central tax, State tax, Union territory tax, integrated tax and cess. Tax shall not be deducted on CGST, SGST / UTST or IGST and Cess. That means tax shall not be deducted on GST tax.
TDS provisions came into force from October 01, 2018.
Who is liable to deduct TDS under GST ?
(1) A department or an establishment of the Central Government or State Government; or
(2) Local authority; or
(3) Governmental agencies; or
(4) an authority or a board or any other body, set up by an Act of Parliament or a State Legislature; or established by any Government, with 51% or more participation by way of equity or control, to carry out any function;
(5) Society established by the Central Government or the State Government or a Local Authority under the Societies Registration Act, 1860 (21 of 1860);
(6) Public sector undertakings.
Note – Registration is mandatory as there is no threshold limit.
RATE OF GST TDS
TDS rate for Intra-State supply – 1% under CGST & 1% of SGST
TDS rate for Intra-State supply – 2%
Where the location of the supplier and the place of supply is in Mumbai and the recipient is also registered in Mumbai. It is an intra-state supply. Tax will be deducted @ 1% each under CGST and 1% under SGST.
Location of the supplier is in Gujarat and the place of supply is in Mumbai and recipient is registered in Mumbai. It is an inter-state supply. Tax will be deducted @ 2% under IGST.
No TDS needs to be deducted under following circumstances:
- When the location of supplier and place of supply is in a State / UT which is different from the State of the registration of the recipient.
- On Supply of Exempted and Nil rated goods and services.
- Goods on which GST is not leviable – Petrol, gas and alcohol.
- All activities or transactions specified in Schedule III of GST act.
- Where the tax is to be paid on reverse charge by the recipient.
- Where the payment is made to an unregistered supplier.
PROCEDURE RELATING TO TDS FILING
Few small points to note:
- Tax shall even be deducted when advance is paid to a supplier for supply of taxable goods or services or both.
- Composition dealer can also take credit and adjust this amount against his output tax liability, as this amount is not an input tax credit.
- No TDS be deductible on supplies received from outside India.
- No need to file GSTR 7 return for the month in which no deduction has been made.
- TDS under GST law is different and TDS under Income tax law is different.
- Where deductor fails to deposit TDS on time, he shall be liable to pay Interest @ 18% pa for the delay period.