In this article, we will understand each concept of TDS under GST law. Most of the persons get confused between TDS under income tax act and TDS under the GST Act. Let me first clarify that the TDS under Income Tax Act, 1961 is totally different from TDS under the GST Act.
TDS means Tax deduction at the source which is defined under section 51 of CGST Act, 2017. As the name suggests, the deduction of tax from the source.
Whether in the Income-tax Act or under the GST Act, the objective of the government to introduce the TDS is to take control over the transactions i.e. to capture the transaction.
Before taking the concept of TDS under the GST Act, let’s just understand the meaning of TDS with an example:
If Mr. A is supplying goods to Mr. B of Rs. 50,000 then Mr. B shall deduct the TDS on the consideration value i.e. on 50,0000 and paid the rest of the amount to Mr. A and the TDS amount to Government.
Now let’s take another example
Mr. A is giving professional services to Indian Oil Corporation Limited (IOCL). The consideration has been decided on Rs. 3,50,000. In this case, IOCL shall deduct the TDS under section 194J in Income tax act and section 51 in CGST Act, 2017.
I know some of you get more confused with the above example but at the end of this article, you will be able to understand it.
In this example, I have intentionally taken the recipient name as IOCL because it’s a PSU and as per section 51, TDS provision shall apply only when the supply of goods or services are made to any of the following:
- Department or establishment of Central or state government
- Government Agencies
- Local Authority
- Society established by the Central Government or the State Government or a Local Authority
PSU
Any authority or body in which 51% or more participation is being carryout by any government.
In simple words, if the recipient is not a government body then TDS under GST shall not apply.
It’s just the one conditions, there are conditions too, for the application of TDS and these are:
Supply of goods or services
The supply of goods or services is mandatory for the deduction of TDS on the payment amount.
Note: As I have specified, TDS shall be deducted on the payment amount and not on the invoice amount.
Place of supply
To determine the place of supply as an interstate supply or intrastate supply, we generally consider the location of the supplier and destination of supply. The provision for determining is still the same under TDS but there is a minor addition.
TDS provision shall apply if the location of the recipient is the same in any of the following locations:
Location of supplier
Or
Destination place
For Example:
| S.No. | Location of Recipient | Location of Supplier | Destination | TDS Applicable |
| 1 | Delhi | Delhi | Delhi | ✓ |
| 2 | Delhi | Delhi | UP | ✓ |
| 3 | Delhi | UP | UP | 🗴 |
| 4 | Delhi | UP | Mumbai | 🗴 |
Registration Requirement
Normally for the registration under the GST Act, the limit of 20/10 Lakhs shall be applicable. However, section 24 of the CGST act, 2017 specify some of the persons who are compulsorily required to get registration under the act and it includes the persons who are required to deduct TDS under section 51.
In simple words, the recipient who are specified government authorities as specified in above para, they are required to deduct TDS under section 51, they have to get compulsory registration under the act.
Note: The TDS provisions shall be applicable only if the supply is a taxable supply that means TDS shall not be deducted on exempted supply or Non-Taxable Supply
Determination of the amount of TDS
TDS shall be deducted @ 1% CGST and 1% SGST in case of intrastate supply and 2% IGST in case of interstate supply.
TDS shall be deducted on the consideration value(on Actual payment amount and not on the GST Invoice value.
TDS shall be deducted of if the assessable value exceeds Rs. 2,50,000/-.
Key Note:-
Assessable value is Goods/Service value but excluding all the Gst Taxes that is, CGST, SGST/UTGST, IGST, GST CESS. It means that all Gst taxes will not be taken while considering Assessable value
Example: If the invoice value is Rs. 2,60,000 but the payment is made only Rs. 1,00,000. Now, Since the AV exceeds Rs. 2,50,000 hence the TDS provisions shall be applicable and the payment is made of Rs. 1,00,000 so TDS shall be deducted on Rs. 1,00,000 @ 2% under IGST (Considering it as interstate supply).
Hence don’t get confused between assessable value and payment value.
The assessable value determines whether TDS provisions will apply or not, and Payment value used for deduction of TDS.
Normal Charge Mechanism (NCM)/ Reverse Charge Mechanism(RCM):
I can explain this with the example:
NCM: Supply of goods of Rs. 5,00,000 to government authority in inter-state supply
| Bill Value | 5,00,000 | ||
| IGST @ 18% | 90,000 | ||
| 5,90,000 | |||
| TDS Rate | 2% | ||
| TDS amount | 5,00,000 * 2% = 10,000 | ||
| Final Payment | 5,90,000 – 10,000 = 580,000 | ||
RCM: Supply of service of Rs. 5,00,000 to government authority in inter-state supply
| Bill Value | 5,00,000 | ||
| IGST @ 18% | |||
| 5,00,000 | |||
| TDS Rate | 2% | ||
| TDS amount | 5,00,000 * 2% = 10000 | ||
| Final Payment | 5,90,000 – 10,000 = 5,80,000 | ||
| GST under RCM | 90,000 | ||
Now the recipient shall deposit 2 amounts to government GST of Rs. 90,000 and TDS of Rs. 10,000
The GST amount deposit by the recipient can take the ITC in the next month and the TDS amount would be reflected in the Electronic cash ledger of the supplier.
Note: if the supplier is covered under section 23 in which he does not require to get registration then also TDS provisions would not be applicable. For example, if the supplier is engaged in supplying of services falls exclusively under RCM, hence he would not require to obtain registration and if he supplies some services to the government authority then they will not deduct the TDS on such supply.
The reason is very simple, if the recipient deducts the TDS and deposit to the government then the supplier would be able to get the benefit for this because he does not have the registration.
Time to deposit TDS
The TDS shall be deposited up to 10th of the next month in which the TDS has been deducted from the payment.
The recipient is also required to issue a TDS certificate to the supplier up to 15th of next month.
The recipient shall file the return in form GSTR-7 by the 10th of next month. That means the last date to deposit TDS and file return is the same 10th of Next month in which the payment has made.
If he fails to comply with the above, then the interest shall be levied of Rs. 100 per day till the compliance with the above but the same shall be limited to a maximum of Rs. 5000.
Journal Entry
Now we all have understood the provisions of TDS but the problem arises on its practical implications. So, let’s understand with our first example in which
Mr. A is giving professional services to Indian Oil Corporation Limited (IOCL). The consideration has been decided on Rs. 3,50,000. In this case, IOCL shall deduct the TDS under section 194J in Income tax act and section 51 in CGST Act, 2017.
The recipient shall make the following entry:
| Particulars | Head | Folio | Calculation | Amount | Remarks |
| Professional Fees | Expense | Dr | 350000 | ||
| ITC on IGST | Assets | Dr | 350000 * 18% | 63000 | Considering it an inter-state supply |
| To Creditor | Liability | Cr | 371000 | Net Payment | |
| To TDS U/S 194J | Liability | Cr | 350000 * 10% | 35000 | TDS on Professional Fees under the Income Tax Act |
| To TDS under GST | Liability | Cr | 350000 * 2% | 7000 |
Conclusion
In this article, we have understood the meaning of TDS, conditions for the application of TDS, computation of TDS, TDS calculation in NCM and RCM supply, Time to deposit TDS, Return to be filed and its journal entry. I hope this article clears all the doubt about the TDS application under GST.