TDS is a process under Goods and Service Tax (GST) where the buyer deducts a portion of the amount payable to the seller as tax and deposits it with the government.
Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of goods and services in India. It replaces several indirect taxes levied by the central and state governments, such as value-added tax (VAT), central sales tax (CST), excise duty, and service tax. To ensure compliance with GST, the government has introduced the concept of Tax Deducted at Source (TDS) under GST.
What is Tax Deducted at Source (TDS) Under GST?
TDS under GST refers to the tax deduction at the supply source by the recipient of goods or services. The tax so deducted is considered an advance payment of the GST liability of the supplier.
The TDS mechanism under GST applies to specific categories of registered persons and is governed by the provisions of Section 51 of the Central Goods and Services Tax Act, 2017.
To ensure compliance with TDS provisions, the deductor must obtain a GST registration and file TDS returns regularly. The TDS returns should include details of the tax deducted, the amount paid to the supplier, and the GSTIN of the supplier. The deductor must also issue a TDS certificate to the supplier, which is proof of the tax deducted.
Who is Eligible to Deduct TDS Under GST?
The provisions of TDS under GST apply only to a specified category of registered persons known as ‘deductors’. The deductors are typically government departments, public sector companies, and local authorities.
The deductors are required to deduct TDS at the rate of 2% of the value of the supply of goods or services, excluding taxes if the total value of such supply exceeds ₹ 2.5 lakhs in a financial year.
The following are some of the categories of registered persons who are eligible to deduct TDS under GST:
- Central or State Government departments
- Local Authorities
- Governmental agencies
- Public sector companies
- Statutory bodies.
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How to Calculate TDS Under GST?
TDS under GST is calculated as 2% of the value of the supply of goods or services, excluding taxes. The deductee is required to calculate the TDS on the value of the supply of goods or services, excluding taxes, and deduct the same from the payment made to the supplier.
The deductee must also deposit the TDS so deducted to the government within 10 days from the end of the month the deduction was made.
The following is an illustration of the calculation of TDS under GST:
Suppose a government department enters into a contract with a supplier for the supply of goods worth ₹ 5 lakhs, excluding taxes. The TDS liability of the government department, in this case, would be calculated as follows:
TDS = 2% of ₹. 5 lakh = ₹ 10,000
The government department would be required to deduct the TDS of ₹ 10,000 from the payment made to the supplier and deposit the same to the government within 10 days from the end of the month in which the deduction was made.
Procedure for TDS under GST
The following is the procedure for TDS under GST:
Step 1: Registration
The deductor is required to obtain a GST registration if they still need to be registered under GST.
Step 2: Deductions
The deductor is required to deduct TDS at the rate of 2% of the value of the supply of goods or services, excluding taxes if the total value of such supply exceeds ₹ 2.5 lakhs in a financial year.
Step 3: Deposit
The deductor must deposit the TDS so deducted to the government within 10 days from the end of the month the deduction was made.
Step 4: Furnishing of TDS Certificate
The deductor is also required to furnish a TDS certificate to the supplier, mentioning the amount of TDS deducted, the amount paid to the supplier, and the amount deposited with the government.
Step 5: Claiming Credit
The supplier can claim credit for the TDS deducted by the deductor by furnishing the TDS certificate to the proper officer in their monthly return.
Impact of TDS on Cash Flow
TDS under GST can have a significant impact on the cash flow of the supplier. The deduction of TDS by the deductor reduces the amount of payment made to the supplier and increases the compliance burden of the supplier.
However, the supplier can claim credit for the TDS so deducted by the deductor in their monthly return. This reduces the supplier’s GST liability and helps improve their cash flow.
Conclusion
TDS under GST is a mechanism to ensure compliance with GST and to prevent tax evasion. The provisions of TDS under GST apply only to specific categories of registered persons and are governed by the provisions of Section 51 of the Central Goods and Services Tax Act, 2017.
The deductor is required to deduct TDS at the rate of 2% of the value of the supply of goods or services, excluding taxes, if the total value of such supply exceeds ₹ 2.5 lakh in a financial year.
TDS under GST is a crucial aspect of the indirect tax system in India and it is the responsibility of the deductor to file TDS returns and comply with the TDS provisions. Non-compliance with the TDS provisions may result in penalties and interest, and it is advisable to seek professional help to ensure correct compliance.
Vakilsearch can provide comprehensive support throughout the TDS Returns process, ensuring compliance with legal and regulatory requirements and helping clients achieve their goals using TDS Returns.
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