Understand the Standard Operating Procedure for TDS compliance under GST, including benefits, applicability, and non-applicability
TDS (Tax Deducted at Source) is a tax collection mechanism in India where a certain percentage of tax is deducted at the time of payment by the payer and deposited with the government on behalf of the payee. The implementation of TDS under GST (Goods and Services Tax) requires a Standard Operating Procedure (SOP) to ensure compliance with the relevant laws and regulations.
The Goods and Services Tax (GST) is an indirect tax system introduced in India to replace various indirect taxes and simplify the tax structure. Tax Deducted at Source (TDS) is a mechanism under the GST regime where the liability to pay tax is shifted from the recipient to the deductor.
The deductor is required to deduct tax at the time of making payment to the supplier and deposit it with the government.
Eligibility for TDS under GST
The TDS provisions under GST apply to:
- Central or State Government departments or local authorities making payment to suppliers for goods and services
- Any person making payment to a supplier for goods and services, where the value of the supply exceeds ₹ 2.5 lakhs in a financial year.
TDS Rate
The TDS rate under GST is 2% for supplies of goods and 1% for supplies of services.
Step-by-Step Standard Operating Procedure for TDS under GST
Step 1: Identification of Supplier
The deductor must identify the supplier and determine if they are eligible to deduct TDS. This can be done by reviewing the GST registration of the supplier and checking if they have a valid GSTIN number.
Step 2: Determination of TDS Liability
The deductor must determine the amount of TDS liability, which is calculated as a percentage of the value of the supply. The TDS rate for supplies of goods is 2% and for supplies of services is 1%.
Step 3: Deduction of TDS
The deductor must deduct the TDS from the amount payable to the supplier and keep it aside. The TDS amount must be credited to the government’s account within 10 days from the end of the month in which the deduction was made.
Step 4: Issuance of TDS Certificate
The deductor must issue a TDS certificate to the supplier, which serves as proof of the TDS deduction. The certificate must contain the following information:
- Name and address of the deductor
- Name and address of the supplier
- GSTIN of the supplier
- Amount of TDS deducted
- Amount of supply
- Date of TDS deduction
Step 5: Payment of TDS to Government
The deductor must deposit the TDS with the government using the Electronic Cash Ledger. The TDS deposit must be accompanied by a challan, which is a form used for depositing taxes.
Step 6: Filing of TDS Return
The deductor must file a TDS return with the government, which is a statement that contains details of the TDS deposited and the TDS certificates issued. The return must be filed monthly within 10 days from the end of the month.
Benefits of TDS Under GST
The benefits of Tax Deducted at Source (TDS) under the Goods and Services Tax (GST) regime are as follows:
- Improved Compliance: TDS promotes compliance with the GST laws as it shifts the liability to pay tax from the recipient to the deductor. The deductor must deduct tax at the time of making payment to the supplier and deposit it with the government, ensuring timely compliance.
- Reduced Tax Evasion: TDS helps in reducing tax evasion as the deductor is responsible for deducting tax at source and depositing it with the government. This makes it difficult for suppliers to evade tax, improving overall compliance with the tax laws.
- Improved Cash Flow: TDS helps in improving the cash flow of the government by ensuring that tax is collected at the time of payment to the supplier. This helps in reducing tax arrears and increasing the government’s revenue.
- Ease of Compliance: The TDS provisions under GST are designed to be user-friendly, with a clear and straightforward process for deductors to comply with. This makes it easy for deductors to comply with the TDS provisions, reducing the administrative burden of compliance.
- Reduced Burden on Recipients: The TDS provisions under GST shift the liability to pay tax from the recipient to the deductor. This reduces the tax burden on the recipient and makes it easier for them to comply with the tax laws.
- Increased Transparency: TDS ensures that tax is collected at the time of payment to the supplier, increasing transparency in the tax system. This helps in reducing corruption and improving accountability in the tax administration.
Non-Applicability of TDS under GST
The Tax Deducted at Source (TDS) provisions under the Goods and Services Tax (GST) regime are not applicable in certain situations. Some of the scenarios where TDS is not applicable are:
- Small Suppliers: TDS provisions under GST are not applicable to small suppliers whose aggregate turnover in a financial year does not exceed Rs. 2 crore. This is to provide relief to small businesses and reduce their compliance burden.
- Certain Supplies: TDS provisions under GST do not apply to certain supplies, such as supplies made to the Central or State Governments, Local Authorities, or a Governmental Authority.
- Reverse Charge Mechanism: TDS provisions under GST do not apply to supplies made under the Reverse Charge Mechanism (RCM). Under RCM, the recipient of the supply is liable to pay tax, and TDS provisions do not apply to these supplies.
- Advance Payment: TDS provisions under GST do not apply to advance payments made to suppliers. The liability to pay tax arises only when the supply is made, and TDS provisions do not apply to advance payments made to suppliers.
- Non-Resident Suppliers: TDS provisions under GST do not apply to non-resident suppliers. The recipient of the supply is liable to pay tax under the provisions of the Integrated Goods and Services Tax (IGST) in these cases.
Conclusion:-
The Standard Operating Procedure for TDS under GST provides a clear and straightforward process for deductors to comply with the TDS provisions under the GST regime.
It is important for deductors to understand and follow the Standard Operating Procedure to avoid penalties and ensure compliance with the tax laws. By following the Standard Operating Procedure, deductors can make the TDS process smooth, efficient and hassle-free. To make it easier for you, our experts at Vakilsearch are here to help you throughout the entire process.
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