TDS on GST: Know About Applicability, Benefit, Penalty

TDS on GST

Updated on 19 Mar, 2024

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When an entity deducts Tax Deduction at source or TDS under GST, they need to file monthly returns with GSTR-7. TDS on GST must be filed by the TDS deductor (who deducts the prescribed tax from the payments credited to the seller of taxable goods and services).

Both government or private sector entities are allotted a separate GSTIN when they are registered as ‘Tax Deductor’. One can use their existing Tax Deduction and Collection Account Number (TAN) to obtain GST registration. GST registration for the same can even be obtained without a PAN, but having a valid TAN is crucial.

Let us discuss GST TDS, GST TDS applicability, deduction limits and penalties in detail.

What is TDS on GST?

TDS in GST is deducted as per the rates prescribed from time to time. GST TDS is a percentage of the amount payable by the recipients of taxable goods and services. This collected tax amount goes to the Government of India (GoI) as revenue. Presently, as per Section 51(1) of the KGST/CGST Act 2017 are:

1 per cent each for CGST and SGST
2 per cent in case of IGST

If, under a contract, the value of goods and/or services is above the threshold of ₹2.5 lacs, then TDS has to be deducted. This tax rate is applicable to particular notified individuals under GST.

Is GST TDS applicable to everyone?

The following entities and individuals can deduct TDS as per the GST law:

Public Sector Undertakings (PSUs)
A Central or State government department or establishment
Government agencies or local authorities
Central or State government notified persons or categories of persons.
GoI, or Parliament or State Legislature, established bodies, boards and authorities where 51 per cent equity or control is in the hands of the government.
Societies established via GoI, or State government or local authorities
Societies that are registered under the Societies Registration Act 1860

It is mandatory for these debtors to deduct TDS under an individual contract where the value of taxable goods and services purchased exceeds ₹2.5 lacs.

What is the liability for TDS in GST?

TDS in GST would be 2 per cent where the individual contract value of traded goods or services or both exceeds ₹2.5 lacs. This would be 1 per cent CGST and 1 per cent SGST (total 2 per cent) for intra-state supplies and 2 per cent IGST in case of inter-state supplies.

To whom is TDS on GST to be paid?

The TDS deduction needs to be filed using form GSTR 7. This TDS needs to be paid within 10 days following the filing of GSTR-7. The payment for IGST and CGST will be made to the Central government, and that for SGST will be made to the State government.

How would the value of supply with TDS deduction be considered?

The value of supply should be taken as the value (exclusive of tax) indicated on the invoice. This means the amount added through IGST, CGST, and SGST shall not be deducted from TDS.

What are the benefits of TDS to the supplier?

The TDS amount will auto-reflect in the supplier’s electronic ledger after the seller has filed returns. The seller can use this amount from the electronic ledger to pay specific taxes or claim credit.

What are the penalties for TDS non-compliance?

The following penalties apply to the non-compliance of TDS under GST rules. Please refer to the table below.

Scenario Types	Penalties for Non-Compliance
TDS not deducted	18 per cent interest applicable with TDS. Otherwise, shall determine the amount and recover as per legal provisions
TDS certificate isn’t issued or delayed by more than 5 days	₹100 per day would be charged as a late fee (sub. to max ₹5000) under each Act
Deducted but not paid TDS to the government or delayed payment and made after the 10th of the preceding month	18 per cent interest was charged along with TDS. This would be calculated from the day following the return filing deadline up to the actual payment date. Otherwise, shall determine the amount and recover as per the law’s provisions.
TDS return late filing	₹100 per day would be charged as a late fee (sub. to max ₹5000) under each Act