Tax Deducted at Source (TDS) is a system under which the person making payment (known as the deductor) deducts a certain percentage of tax at the time of making payment to the supplier (known as the deductee). In the case of GST, TDS is deducted by the deductor at the rate of 2% (1% for CGST and 1% for SGST/UTGST) on the value of taxable supply made by the supplier. In this article we will discuss a detailed guidelines on the deductions and deposits of TDS under GST tax regime.
Who Can Deduct TDS Under GST?
TDS (Tax Deducted at Source) is deducted by the person or entity making payment to another person, if the payment exceeds a certain threshold amount. Any person who is registered under GST and is making payment to the supplier for the supply of goods or services can deduct TDS.
The Following Persons/Entities Are Required To Deduct TDS Under GST:
- Employers: TDS is deducted by employers from the salaries of their employees.
- Banks: TDS is deducted by banks on interest income earned on fixed deposits and recurring deposits.
- Companies: TDS is deducted by companies on payments made to contractors, suppliers, etc.
- Individuals/HUFs: TDS is deducted by individuals/HUFs on rent paid if it exceeds a certain threshold limit.
When Is TDS To Be Deducted?
TDS is to be deducted at the time of making payment to the supplier. However, if the payment is being made in advance, TDS should be deducted at the time of making the advance payment.
How Much TDS Should Be Deducted?
The rate of TDS to be deducted depends on the nature of payment, the amount of payment, and the status of the person receiving the payment. The rate of TDS can range from 1% to 30%. The specific rate of TDS to be deducted is prescribed by the Income Tax Department and can be found in the Income Tax Act, 1961 or the relevant notification issued by the government. The rate of TDS under GST is 2% (1% for CGST and 1% for SGST/UTGST) on the value of taxable supply made by the supplier.
When Is TDS To Be Deposited?
TDS deducted by the deductor has to be deposited with the government within 10 days from the end of the month in which TDS under GST was deducted. For example, TDS deducted in the month of January has to be deposited by the 10th of February.
How to Deposit TDS under GST?
TDS can be deposited using the Electronic Cash Ledger on the GST portal. Under the GST tax regime, TDS (Tax Deducted at Source) is required to be deposited by the deductor who has made a payment to a supplier who is registered under GST.
Here are the steps to deposit TDS under GST:
- Log in to the GST portal using your credentials.
- Click on the ‘Services’ tab and select ‘Payments’ from the drop-down menu.
- Click on ‘Create Challan’ to generate a new challan.
- Enter the relevant details such as the amount of TDS to be deposited, the name of the deductor, and the name of the deductee/supplier.
- Select the appropriate GST tax type for which TDS is to be deposited, i.e., CGST, SGST, IGST, or CESS charges.
- Choose either mode of payment (Online/Offline) and select the bank or payment gateway through which the payment will be made.
- Verify the details and submit the challan.
- Once the payment is made, a receipt will be generated.
It is important to note that TDS under GST is required to be deposited on a monthly basis by the 10th day of the following month. Failure to deposit TDS within the due date may attract penalties and interest.
How to File TDS Return?
The deductor has to file GSTR-7 (TDS Return) within 10 days from the end of the month in which TDS was deducted.
To file TDS return under the GST regime, follow these steps:
- Log in to the GST portal with your GSTIN and password.
- Navigate to the “Services” tab and select “Returns” from the drop-down menu.
- Click on the “Returns Dashboard” option.
- Choose the financial year for which you want to file the TDS return.
- Select the TDS return form (GSTR-7) from the drop-down menu.
- Enter the required details such as the GSTIN of the deductee, amount of TDS deducted, and the amount of TDS paid.
- Click on the “Preview” button to verify the details entered.
- If there are any errors or discrepancies, rectify them and then click on the “Submit” button.
- Once the return is submitted, a success message will be displayed on the screen.
- Download the acknowledgement receipt and keep it for your records.
What Are The Consequences Of Non-Deduction Or Non-Payment Of TDS?
If TDS is not deducted or not deposited, the deductor will be liable to pay interest at the rate of 18% per annum from the date on which TDS was deductible till the date on which it was actually paid. In addition, the deductor may also be liable to pay a penalty.
Let us understand in details regarding the consequences of TDS:
TDS (Tax Deducted at Source) is the amount of tax that is deducted from a payment made to a person, as per the Income Tax Act. The consequences of non-deduction or non-payment of TDS can be severe, and they may include the following:
- Interest: If TDS is not deducted or is deducted but not paid, interest at the rate of 1.5% per month or part of the month will be charged until the tax is paid.
- Penalty: If TDS is not deducted or is deducted but not paid, a penalty of up to the amount of tax that should have been deducted can be imposed.
- Prosecution: If TDS is not deducted or is deducted but not paid, the person responsible for deducting and paying TDS can be prosecuted under the Income Tax Act.
- Disallowance of Expenses: If TDS is not deducted or is deducted but not paid, expenses related to the payment may be disallowed while computing the taxable income of the person who made the payment.
- Loss of Reputation: Non-deduction or non-payment of TDS can lead to a loss of reputation in the business community and can affect the ability to get future business opportunities.
Therefore, it is important to ensure that TDS is deducted and paid on time to avoid any penalties, interest, or prosecution under the Income Tax Act.
In conclusion, the guidelines for the deduction and deposit of TDS under GST are clear and specific. It is important for deductors to comply with these guidelines to avoid penalties and interest charges. It is always advisable to consult a tax expert or refer to the relevant provisions of the Income Tax Act or Goods and Service Tax Act for specific details on the rate of TDS to be deducted for different payments.