With the main objective of preventing tax evasion and expanding the tax net, the Government of India introduced the concept of TDS on GST. This concept was first introduced in the Indian Income Tax Act and has now been introduced in Goods and Services Tax as well. With the introduction of TDS on GST, the Government aims to have a record of all transactions and to check the compliance.

How Does It Work?

As stated earlier, TDS on GST is a powerful way to prevent tax evasion. Let us understand its working. When you as a company or a business deduct TDS under the Income Tax Act, you deposit the TDS with the Government and then issue a Form 16 and Form 16A. Similarly, under the GST Act, the person deducting the TDS will file the same with the Government by the 10th of the month after the deduction and issue a GSTR 7A.

Who can Deduct TDS under GST?

According to Section 51 of the CGST Act, 2017, the following entities or individuals can deduct TDS under GST:
  • Central and State government establishment or department
  • Local authority or government agencies
  • Individuals or group of individuals if notified by the Government
As per the new changes in the law, the following entities also need to deduct TDS:
  • Any entity set up by the Parliament, the State legislature or the Government with at least 51% ownership of the Government.
  • Public Sector Undertakings
  • Any society set up by the State or Central Government and registered under Society Registration Act 1860.
Individuals and entities stated above can only deduct TDS under GST when payment is made or credited to the supplier.

Under what circumstances is TDS under GST deducted?

  • TDS is deducted at a flat rate of 2 % on payments made to the supplier of goods and services that come under the taxable category.
  • If the total value of such supplies, under a single contract, exceeds two lakhs fifty thousand rupees, then TDS under GST will be applicable.
  • If the contract value is less than 2.5 lakh rupees, no TDS will be deducted. However, one important thing to note here is that this value is for an individual contract and not for the total number of contracts.

How to register for TDS deduction?

Whoever is eligible to deduct TDS under GST is compulsorily required to register. Registration can be obtained by submitting your current Tax Deduction and Collection Account Number, which is TAN. Having a TAN for this process is mandatory.

TDS Deposit with the Government

The 10th of the next month is the last day to deposit the deducted TDS with the Government. It should be filed in Form GSTR 7 through the online portal.

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DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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