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How to Deduct TDS on GST Bill? - IndiaFilings

How to Deduct TDS on GST Bill?

Tax Deducted at Source (TDS) plays a crucial role in the Indian taxation system, ensuring tax collection at the source of income. Under the Goods and Services Tax (GST) regime, TDS provisions are applicable to specific transactions, requiring businesses to deduct TDS while making payments. The deducted amount must be deposited with the government through the GST portal and reported in the TDS return. Suppliers can subsequently claim credit for this amount in their GST return, streamlining tax compliance and accountability. In this article, you will get to know how to deduct TDS on GST bill and other important information. Get expert help from IndiaFilings to effortlessly deduct, deposit, and file your TDS returns under GST! [shortcode_35]

What is TDS Deduction?

Tax Deducted at Source (TDS) is a mechanism used by the Income Tax Department to ensure tax collection at the source of income generation. Under this system, a specified percentage of the payment, such as salary, interest, commission, rent, or professional fees, is deducted by the payer and remitted directly to the government on behalf of the payee. TDS facilitates a steady tax revenue inflow and minimizes tax evasion by collecting taxes in advance. When filing their income tax return, the deducted amount can be adjusted against the payee's final tax liability.

Importance of TDS deduction

Here are the several reasons emphasizing the importance of TDS deduction:
  • Ensures Timely Tax Collection: TDS facilitates regular and timely tax collection for the government, avoiding year-end tax dues.
  • Prevents Tax Evasion: By deducting tax at the source, it minimizes the scope for underreporting income or evading taxes.
  • Creates Transparency: Since the deduction is recorded and reported, it ensures a clear trail for both the government and the taxpayer.
  • Regular Filing of Returns: Individuals and entities track their income and taxes deducted, promoting timely filing of income tax returns.
  • Adjustable Against Final Tax Liability: The TDS amount is credited to the taxpayer’s account, reducing their final tax burden.

Who is required to deduct TDS under GST?

Under the Goods and Services Tax (GST) regime, specific entities are obligated to deduct TDS on GST from payments made or credited to suppliers, provided the contract value exceeds ₹2.5 lakhs. These entities include:
  • Departments or Establishments of the Central or State Government: All government departments and establishments must comply with TDS deduction rules under GST.
  • Local Authorities: Municipal corporations, panchayats, and other local bodies are mandated to deduct TDS on payments.
  • Government Agencies: Agencies operating under the central or state government are required to ensure TDS compliance.
  • Notified Persons or Categories: The government may notify specific persons or categories of persons who must deduct TDS as per GST provisions.

TDS rates under GST

Under GST, TDS is deducted at a rate of 2% on payments made to the supplier of taxable goods and/or services, provided the total value of the supply in an individual contract exceeds ₹2.5 lakh. This deduction is applicable to both the Central GST (CGST) and State GST (SGST) components, with 1% each being deducted for CGST and SGST Learn more: TDS rates chart

Steps to Deduct TDS on GST Bill

Here are the steps typically followed to deduct and deposit the TDS on GST bill,
  • Verify the Contract Value: Ensure that the total contract value exceeds ₹2,50,000 to determine if TDS is applicable.
  • Confirm GST Registration: Check that both the deductor (the person deducting TDS) and the deductee (the supplier) are registered under GST.
  • Calculate the Payable Amount: Determine the amount to be paid to the supplier, excluding GST, as TDS is calculated on the supply value before GST.
  • Compute TDS: Deduct TDS at a rate of 2% on the payable amount (excluding GST), splitting the deduction equally between CGST and SGST at 1% each.
  • Deposit the TDS: Ensure timely deposit of the deducted TDS with the government to avoid penalties.
  • File TDS Returns: Submit TDS returns using Form GSTR-7 and provide the supplier with a TDS certificate in Form GSTR-7A to confirm the deduction.

Example

A government body signs a contract with a supplier for goods worth ₹4,50,000. The GST rate applicable is 18%.

Breakdown of the Calculation:

  • Contract Value: ₹4,50,000
  • GST (18%): ₹4,50,000 × 18% = ₹81,000
  • Total Invoice Value: ₹4,50,000 + ₹81,000 = ₹5,31,000
  • Amount Excluding GST: ₹4,50,000

TDS Calculation:

  • TDS Rate: 2% on the amount excluding GST
  • TDS Amount: ₹4,50,000 × 2% = ₹9,000
TDS Deduction: ₹9,000 Total Payment to Supplier: ₹5,31,000 - ₹9,000 = ₹5,22,000 This example demonstrates how TDS is deducted from the contract value before GST, ensuring that the final payment to the supplier reflects the deduction made.

TDS Deposit and Return Filing

The TDS deducted by the deductor must be deposited with the government by the 10th of the following month. This payment is made using Form GSTR-7 through the GST online portal. If the deducted TDS is not deposited within the specified time, the deductor will be liable to pay interest on the outstanding amount. In addition to depositing the TDS, the deductor must issue a TDS Certificate (Form GSTR-7A) to the supplier (the deductee) within 5 days of depositing the TDS with the government. This certificate serves as proof of the TDS deduction. The deducted TDS will also be visible to the supplier in Form GSTR-2A. The supplier can then include this amount in GSTR-2 and claim it as credit in their electronic cash register. This credit can be utilized to pay taxes or any other liabilities, ensuring smooth reconciliation of GST payments.

Penalty for Non-Compliance with TDS Provisions under GST

Non-compliance with TDS provisions under GST can result in penalties for businesses and individuals. Below are the consequences of failing to adhere to the TDS rules:
  • Failure to Deduct TDS: If TDS is not deducted, interest will be charged on the TDS amount. The amount will also be determined and recovered as per applicable laws.
  • Delayed or Non-Issuance of TDS Certificate: If the TDS certificate (Form GSTR-7A) is not issued within the prescribed 5-day period, a late fee of ₹100 per day will be imposed, up to a maximum of ₹5,000.
  • TDS Deducted but Not Paid to the Government: If TDS is deducted but not paid to the government, or if payment is made after the 10th of the following month, interest will be charged along with the TDS amount. The amount will also be determined and recovered as per the law.
  • Late Filing of TDS Return: If the TDS return is filed late, a fee of ₹100 per day will be levied for each day of delay, subject to a maximum penalty of ₹5,000.
**The penalty for TDS provisions under GST are subject to change

Conclusion

In conclusion, deducting TDS on GST bills ensures compliance with the GST provisions, streamlines tax collection, and facilitates transparency in transactions. By following the outlined steps and adhering to deadlines for depositing TDS and filing returns, businesses can ensure that they avoid penalties while keeping their tax processes efficient. Additionally, the TDS certificate provided to the supplier allows them to claim the deducted amount as credit, helping both parties maintain accurate tax records. Whether you're a government entity or a specified business, understanding and implementing TDS deduction on GST bills is essential for smooth operations within the tax framework. Ensure seamless compliance with GST TDS regulations and avoid penalties with IndiaFilings expert TDS return filing service! [shortcode_35] Author: DINESH P
Dinesh Pandiyan is our expert content writer who specialises in business registration, tax regulations, trademark laws, and company compliance. His insightful articles deliver clear and actionable advice, helping businesses easily navigate and overcome complex legal and regulatory challenges.
Updated on: January 7th, 2025