Tax Deducted at source (TDS) under GST

Initially, TDS was introduced under income tax law. As per TDS rules, a taxpayer must deduct a certain percentage in the form of tax while making payments. Subsequently, deposit the deducted amount with the department within the permitted time limit. In GST Law, the same concept is implemented through Section 51. The department has specified certain circumstances in which taxpayers are required to deduct TDS under GST.

Who is responsible for deducting TDS?

TDS deduction responsibility lies with the following entities, as per Section 51:

Departments or establishments of the Central Government or State Government
Local authorities
Governmental agencies
Authorities, boards, or bodies established by an act of parliament or state legislature or by any government, with government participation of 51% or more in terms of equity or control
Public sector undertakings (PSUs)
Societies established by the central government, state government, or a local authority under the Societies Registration Act, 1860
Additionally, Department has notified a list of authorities under the Ministry of Defence to whom the TDS provision applies. Click Here for details. Authorities not covered in the circular are exempt from TDS deduction.

Note: If any of the above entities supply goods or services to another entity listed above, the taxpayer is not liable to deduct TDS in such cases.

What is the rate of TDS under GST?

The Tax should be deducted at 1% CGST and 1% SGST of the payment made to the supplier of taxable supply. The Taxpayer need not deduct the TDS if the contract value is less than Rs. 2.5 Lakhs.

Point to be noted that, the invoice value is not the criteria for deducting the TDS under GST. The contract value should be considered for applicability.

Value of Contract:

The value of the contract should be excluding the GST tax and cess for the purpose of section 51.

Exception from deduction of TDS:

As per the provisions of Section 51(1) of the CGST Act, 2017, taxpayers are not required to deduct TDS. If the supplier and place of supply are in the same state, but the recipient of the supply is registered under another state.

In the above case, the supply is considered intra-state, since the place of supply is within the same state. And CGST & SGST taxes would be levied. However, transferring the TDS to the supplier’s cash ledger would be challenging. Because the recipient is not registered in the same state. Hence, TDS is not deducted in this scenario.

Location of Supplier	Place of Supply	Registration of Recipient	TDS u/s 51
Delhi	Delhi	Delhi	Yes
Delhi	Delhi	Haryana	No
Delhi	Haryana	Haryana	Yes

When does TDS need to be deposited to the government?

The amount of TDS needs to be deposited with the government by 10^th of next month.

TDS certificate

The person who is deducting the tax needs to issue a tax certificate to supplier.

Refund of excess deduction or erroneous deduction

The deductor or the deductee can claim the refund of excess deduction or erroneous deduction under section 54. However, if TDS is already deposited in the E-cash ledger, then the same will not be refunded under section 54.

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