Published on:
December 26, 2022

TDS: Function In GST

According to section 51, this rule applies to payments made under contracts by the government, government undertakings, and other notified entities where the total value of such supplies exceeds Rs. 2.5 lakhs to suppliers. It was created to take tax payments directly from the source of an individual's income. It is a mechanism used by the government to collect taxes in order to reduce tax evasion by collecting revenue (either fully or partially) as soon as it is earned rather than at a later time. In accordance with the GST law, certain registered parties who have been notified will be obligated to withhold these taxes from payments they make to registered suppliers. To put it another way, TDS required by the GST must be subtracted and submitted with the government. A person making payments may deduct TDS, a sort of direct tax. As a result, in accordance with the Income Tax Act, anyone making a payment must deduct Tax at Source. Providing that the amount paid exceeds the threshold limit established by the tax authorities.

What is TDS under GST

One method of collecting tax is through Tax Deducted at Source, which bases its percentages on the recipient's obligation to pay for the products or services. The government receives income from the tax that is collected.

In accordance with CGST Rule 66, Section 51 of the CGST Act contains the clause relating to TDS under GST.


Why is Tax Deducted at Source important

TDS is a mechanism used by the government to collect taxes in order to reduce tax evasion by collecting revenue (either fully or partially) as soon as it is earned rather than at a later time. It is imposed on a variety of revenues, including salary, dividends, interest, and commission payments.

Who is liable to deduct TDS under GST

1. Local authority

2. Governmental agencies

3. Such persons may be notified by the Government

4. Department of the Central Government or State Government

What are the registration requirements for TDS diductors

A person who is liable to get TDS deduction has to compulsorily register and there is no threshold limit for it. By using the current Tax Deduction and Collection Account Number (TAN) given under the Income Tax Act, one can register for GST without providing a PAN. As a result, having TAN is mandatory.

TDS to be paid to whom and when

TDS must be paid within 10 days of the end of the tax-deducting month. The relevant government shall get paid, which means:

1. The state government in the case of the SGST.

2. The central government in the case of IGST and the CGST.

Provisions relating to the issue of TDS certificate under the GST law

Similar to the Income Tax Act, the GST deductor must provide the affected party with the TDS certificate in form GSTR-7A within five days of submitting the tax to the government. However, based on the GSTR-7 filed, the GST portal will immediately make GSTR-7A available to the deductee.

The value of supply on which TDS shall be deducted be considered
The value of supply is to be taken as the sum excluding the tax shown on the invoice for the purpose of deducting TDS. This means that TDS cannot be subtracted from the invoice's CGST, SGST, or IGST components.

For instance, supplier A provides B with a $5,000 supply. GST is charged at an 18% rate. When B pays A, A will receive Rs. 5,000 (the value of the supply) plus Rs. 900 (GST), and B will receive Rs. 100 (RS. 5000 * 2%) as TDS from the government. Therefore, it can be claimed that TDS is not subtracted from a transaction's tax component (GST).

Benefit if TDS to the Deductee (Supplier)

Once the deductor files his or her returns, there will be an automatic reflection in the deductee's (supplier's) electronic ledger. The deductee may claim credit for the amount of this tax deducted in his electronic cash ledger and use it to pay other taxes.

How to get TDS refund under GST?

A situation where an excess amount of tax is deducted, a refund can be claimed as this is not the tax amount that the government is entitled to.  However, the amount deducted cannot be refunded to the deductor if it has already been put to the supplier's electronic cash ledger. Deductee can claim a refund of tax subject to refund provisions of the act.


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Updated on:
March 16, 2024