The Goods and Services Tax (GST) system introduced several provisions to ensure better tax compliance. One such mechanism is Tax Deducted at Source (TDS) under GST. It works as a way for the government to collect tax at the time of payment to suppliers. Understanding what is TDS in GST helps businesses avoid penalties and ensures smooth compliance.
Meaning of TDS in GST
TDS in GST means that certain notified persons must deduct a small percentage of tax when making payments to suppliers. The deducted amount is later deposited with the government. This process strengthens transparency and reduces chances of tax evasion.
For example, if a government department makes a payment of ₹1,00,000 to a registered supplier, it has to deduct 2% GST TDS and deposit it with the government. The supplier gets credit of this deduction in their electronic cash ledger.
Who Needs to Deduct TDS in GST?
The law specifies certain organizations that must deduct TDS in GST. These mainly include:
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Central Government and State Governments
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Local authorities (like municipalities)
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Government agencies
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Public sector undertakings (PSUs)
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Any notified body or authority set up under law
Thus, private businesses normally don’t deduct TDS under GST unless specifically notified.
Rate of TDS in GST
The TDS rate under GST is 2% (1% CGST + 1% SGST) for intra-state transactions. For inter-state transactions, it is 2% IGST.
| Type of Supply | TDS Rate | Split |
|---|---|---|
| Intra-State Supply | 2% | 1% CGST + 1% SGST |
| Inter-State Supply | 2% | IGST |
This deduction applies only when the total value of supply under a contract exceeds ₹2.5 lakh (excluding GST).
Compliance for TDS Deductors
Entities required to deduct TDS must also follow proper compliance. The key responsibilities are:
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Deduct TDS at 2% while making payment.
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Deposit the amount with the government by the 10th of the following month.
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File GSTR-7 return to declare TDS deducted.
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Issue TDS certificates (GSTR-7A) to suppliers within 5 days of depositing TDS.
Benefits of TDS in GST
The TDS in GST mechanism benefits both the government and suppliers:
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Improves tax compliance by tracking high-value transactions.
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Ensures steady revenue flow for the government.
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Suppliers get credit of deducted tax in their electronic cash ledger.
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Reduces chances of tax evasion in large public contracts.
Key Takeaways
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What is TDS in GST? It is a system where notified entities deduct 2% tax while paying suppliers.
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Applicable when supply value exceeds ₹2.5 lakh under a contract.
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Deductors must deposit tax, file GSTR-7, and issue TDS certificates.
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Suppliers benefit by receiving credit of deducted tax.
Conclusion
The concept of TDS in GST strengthens accountability and prevents revenue leakage in government and public sector contracts. Businesses dealing with such organizations should be aware of this rule to ensure smooth payments and compliance.
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