TDS Rate in GST

• The clarity on deducting TDS when making payments under GST has complications which are being experienced
• Entities are required to collect TDS at 1% on payments to suppliers to goods or services in excess of Rs 2.5 lakh
• The format of collecting and depositing TDS also clearly mentioned with notification

At the time of rolling out GST, the government had deferred the implementation of TDS (Tax Deducted at Source) and TCS (Tax Collection at Source) provisions as well as exempted from registration small businesses selling on ecommerce platform. It meant that E-commerce companies did not require to collect 1% TCS while making payment to suppliers under the GST. Yet, as per the Central GST (CGST) Act, the notified entities are required to collect TDS at 1% on payments to suppliers to goods or services in excess of Rs 2.5 lakh as a provision was kept in abeyance. This was done with the feedback from trade and industry.

There is however, clarity now on the TDS with the Central Board of Direct Taxes (CBDT) clarifying that, where the recipient of a service is required to deduct tax at source (TDS) when making a payment to the supplier, the amount of TDS shall be computed without grossing up for the goods and service tax (GST) component, which is also part of the bill. To enable TDS to be computed exclusive of the GST component, it is vital that the GST component is indicated separately, added a CBDT circular.

The CBDT is continuing with the stand adopted by it earlier in case of service tax, where the amount payable was not grossed up with the service tax component for determining TDS. For example, if the payment under a works’ contract is Rs 10 lakh, GST will be Rs 1.8 lakh. The issue posed to the CBDT was whether the TDS would be on Rs 11.8 lakh or Rs 10 lakh. If the GST component is indicated separately, CBDT clarifies that TDS will be against Rs 10 lakh which is the income of the service provider. In other words, Rs 1 lakh will be the TDS component. The CBDT has clarified that this circular will also apply to existing contracts entered into before July 1, when GST was introduced.

TDS applicability

As per the recent notification, TDS is to be deducted from payments made to a supplier of any taxable goods or services or both, if the total contract of such supply exceeds Rs 2.5 lakh. For TDS, the value of supply shall exclude the Central Tax, State Tax, Integrated Tax and Cess mentioned in the invoice. The followings persons are liable to deduct TDS: a department or establishment of the Central Government or State Government, Local authority, Governmental agencies or persons or category of persons as may be notified by the Government on the recommendations of the GST Council.

At present, the TDS provision is not applicable to companies which are registered under Companies Act, which is private and not government undertaking company. For those looking for registration, it can be done by GST REG-07. The deduction against intra-state supply will be CGST & SGST @ 1% each – to be deposited with the respective Governments Treasury. The deduction against inter-state supply will be IGST @ 2%, to be deposited.

The deductor has to generate a challan online in FORM GST PMT-06 on the Common Portal and make the payment to a Bank through e-payment, Net Banking/Debit-Credit card/NEFT/RTGS or at the bank. In case of default to pay the deducted TDS to the Government within 10 days after the end of the month in which such deduction is made, interest @18% shall be payable in addition to tax deducted.

Moreover, the deductor is liable to pay a penalty of Rs 10,000 or an amount equivalent to the tax not deducted or short deducted or deducted but not paid to the Government, whichever is higher. The monthly return in form GSTR-7 is to be filed by the deductors within 10 days after the end of such month.

The deductors shall furnish TDS certificate in Form GSTR-7A to the deductee, within 5 days of crediting the amount so deducted to the Government, mentioning therein the contract value, rate of deductions, amount deducted, amount paid to the Government and other related particulars. However, if the deductor fails to furnish TDS certificate within 5 days, the dedcutor shall pay a late fee of Rs. 100 per day (The maximum amount of Late Fee payable is Rs 5,000) from the day after the expiry of such five day period until the failure is rectified.

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ARN: ED/08/22/28493