TDS must be deducted where total value of supply exceeds Rs 2.5L. This only applies where the payer is a government entity (central and state govts, local authority, govt agency) or those notified by the govt as GST Council may suggest from time to time.
Is TDS on GST 1% or 2%?
1% TDS is required to be deducted under both the CGST and the SGST Act and therefore the total TDS to be deducted is 2%. In case of an interstate transaction, IGST would be levied and 2% TDS would be levied in this case as well.
For example: Suppose a supplier makes an intra-supply i.e. supply within the same state worth Rs. 10,00,000 to a recipient and CGST @ 9% and SGST @9% is required to be paid. The recipient while making the payment of Rs. 10,00,000 to the supplier shall deduct 1% TDS i.e. Rs. 10,000 under the CGST Act and 1% TDS i.e. Rs. 10,000 under the SGST Act and therefore the total TDS Deducted would be Rs. 20,000.
In case the above supplier makes an inter-state supply, TDS @2% i.e Rs. 20,000 would be required to be deducted under the GST Act and deposited with the Govt.
The value for the purpose of computing the amount of TDS shall not include 18% GST.
Purpose of Introduction of TDS on GST
The concept of TDS on GST was initially introduced in the Income Tax Act and has now been introduced in GST as well. The purpose of introduction of TDS on GST is only to enable the govt to have a trail of transactions and to monitor and verify the compliance.
It acts as a powerful instrument to prevent tax evasion and expands the tax net, as it provides for the creation of an audit trail.
Just like in the Income Tax Act, the person deducting the TDS is required to deposit the TDS with the Govt and issue Form 16 and Form 16A, similarly under GST Act as well, the person deducting the TDS would be required to deposit the same with the Govt by the 10th of the next month and issue Form GSTR 7A to the person whose TDS has been deducted.
Who is required to deduct TDS on GST
The following class of persons are required to deduct TDS on GST from the payment made or credited to the supplier if the Contract Value is more than Rs. 2.5 Lakhs:-
- A Department or Establishment of the Central Govt or State Govt
- Local Authority
- Govt Agencies
- Such persons or category of persons notified by the Govt.
The following category of persons have been notified by the Govt on which the provisions of TDS on GST would be applicable:-
- An authority or board or any other body with 51% or more participation by way of equity or control
- Set up by an Act of Parliament or a State Legislature; or
- Established by any Govt.,
- Society established by the Central Govt. or State Govt. or a Local Authority under the Society Regulations Act, 1860
- Public Sector Undertakings
No TDS to be deducted if the payment is made by a person who is not mentioned in the above-mentioned list.
Cases where TDS on GST is not required to be deducted
TDS on GST is only required to be deducted where the payment made or credited to the supplier is done by the above-mentioned category of persons.
There are certain exceptions to this and in the following cases, TDS would not be deducted even if the payment is made by the above-mentioned persons:-
1. Contract Value does not exceed Rs. 2.5 Lakhs
If the Contract Value does not exceed Rs. 2.5 Lakhs, No TDS is required to be deducted.
Eg 1: Mr Karan Batra enters into a contract of Rs. 2 Lakhs with a Public Sector Undertaking to provide Income Tax Advisory. He also enters into a contract worth Rs. 1.5 Lakhs to provide GST Advisory.
In the above-mentioned example – the total value of services provided is Rs. 3.5 Lakhs which is more than Rs. 2.5 Lakhs. However, in this case – the provisions of TDS on GST would not be applicable as the value of each contract is less than Rs. 2.5 Lakhs.