When is Tax deducted at source as per GST Law

Last Updated at: Jan 15, 2021
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Tax is deducted at source as per GST (Goods & Services Tax) law when payment made to a supplier exceeds Rs 2.5 Lakh for exchange of taxable goods or services.

The government introduced TDS with the aim of collecting tax from the very source of income. A person who is liable to pay any other person with the specific nature shall deduct tax from its source. They can then transfer it to the central government account.  The person whose income tax has been deducted is known as a deductee. Such deductee is entitled to receive the credit for the amount so deducted. The Government uses TDS as a tax collection tool to minimize tax evasion. This is done by taxing income at the time it is generated instead of at a later stage.

Tax is deducted at source as per GST (Goods & Services Tax) law when payment made to a supplier exceeds Rs 2.5 Lakh for exchange of taxable goods or services. Additionally, this value is not inclusive of Central, State, or Union Territory/Integrated or other taxes collected under GST law

Other Conditions for TDS on GST

    1. If the contract value of taxable supply is greater than Rs.2.5/- Lakh: Tax is deducted if the total value of the contract exceeds Rs.2.5/- Lakh, exclusive of taxes or cess levied under GST
    2. When the location of the supplier and the place of supply are in the same State/UT: Tax is deducted at 1% of the value, under each CGST (Central Goods & Service Tax) act / SGST (State Good & Service Tax) act / UTGST (Union Territory Goods & Service Tax) act.
    3. If the location of the supplier and the place of supply are in different States/UTs, without legislature: Tax is deducted at 2% as per the IGST (Integrated Good & Service Tax) act.
    4. When the location of the supplier and the registration of his/her business is in the same State/UT, without legislature: Tax is deducted at 2% as per the IGST (Integrated Good & Service Tax) act. 
    5. Advance paid for taxable goods and services on or before 01.10.2018.

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Tax not deducted on goods and service tax when;

  1. When payment made is less than or equal to Rs 2.5 Lakh:  Tax is not deducted at source for the supplier for payment made by the buyer in exchange for taxable goods or services.
  2. If the contract value of taxable supply is less than Rs.2.5/- Lakh: Tax is not deducted if the total value of the contract is less than Rs.2.5 Lakh.
  3. For exempted services: Central tax dated 28 June 2017, of notification No. 12/2017, lists the exempted services from TDS.
  4. For exempted goods: Central tax dated 28 June 2017, of notification No. 2/2017, lists the exempted goods from TDS.
  5. Non-taxable Goods: Goods such as alcoholic beverages, natural gas, diesel, petroleum, and aviation turbine fuel (ATF).
  6. Invoice issued after 1.07.2017: When an invoice is issued by the supplier for sale of goods after 1 July 2017 [Section 142(13)] tax is not deducted at source. However, the issue of any invoice before 1 July 2017 under the VAT Law, requires a deduction of tax.
  7. Location of the Supplier: If the location of the supplier and the place of supply are in a State/UT different from the State / UT where the supplier is registered. 
  8. Schedule III transactions: Every transaction mentioned under Schedule III of the CGST/SGST Acts 2017
  9. Tax invoice issued: A tax invoice issued before 1 October 2018, in accordance with a payment, tax is not deducted.
  10. Advance Payment: Any amount paid in advance, before 1 October 2018, where tax invoice issued on or after 1 October 2018, tax is not deducted at source.
  11. Tax paid on reverse charge: Where the tax is to be paid on reverse charge by the supplier or the person who pays the tax.
  12. Payment is made to an unregistered supplier: Tax is not deducted at source for payment made to a supply business that is unregistered.
  13. Cess Payments: Tax is not deducted at source for Cess payments
Under the Indian taxation system, all the goods and services are categorized into 6 slabs. It is significant for all business people to know under which category their goods or services fall. The GST rate finder service is used to find the GST rates of all the goods and services. This service is also referred to as the HSN finder. By using the HSN finder, we can also find the HSN codes for goods and services.

 

Penalties Associated With TDS Deduction

The deductor is liable to pay a penalty if they violate the TDS deduction and payment deadlines.

  • For the non-deduction of the TDS

If the deductor fails to collect the tax at source, their expenses are barred from the total profits calculated. This is done by the tax assessor.

  • For the late deduction of the TDS

If the tax is deducted at source after making the income payment, then there is a penalty on it. The tax is deducted along with a simple interest rate of 1 % per month.

  • For late-payment of TDS

As mentioned above, there is a monthly due date for the government to deposit the TDS so collected. If deducers fail to do this, they must pay an interest of 1.5 percent per month in the tax deducted. 

  • For late-filing of TDS Returns

When a deducer doesn’t do the TDS return, a penalty/day until the due date is paid.  The payment is made to the deductor. The total amount of this penalty shall not exceed the total amount of tax deducted from the source. 

  • For non-filing of TDS Returns

If a deductor doesn’t produce TDS return by the time it is due, a penalty will be levied.