What is the Penalty for Failure to Comply with TDS Compliances under GST

The penalty for failure to comply with TDS compliances under GST is an important topic for businesses, government departments, and agencies that act as deductors. Under the GST system, certain entities must deduct Tax Deducted at Source (TDS) on specified transactions and deposit it with the government. If they fail to follow these rules, they may face penalties, interest, and late fees.


Understanding TDS under GST

TDS in GST ensures transparency and proper flow of tax revenue. Deductors, such as government departments, local authorities, and notified entities, must deduct 2% TDS (1% CGST + 1% SGST or 2% IGST) if the value of the contract exceeds ₹2.5 lakh. This deducted amount must be deposited with the government and reported in Form GSTR-7.


Penalty for Failure to Deduct TDS

If a deductor does not deduct TDS when required, they are liable to pay:

  • The TDS amount not deducted, and

  • Interest at 18% per annum from the date the tax was deductible until it is paid.


Penalty for Late Deposit of TDS

When TDS is deducted but not deposited with the government on time, the deductor must pay:

  • The TDS amount due, and

  • Interest at 18% per annum from the date of deduction until the date of payment.


Penalty for Not Filing TDS Returns

Filing Form GSTR-7 on time is mandatory. If the deductor delays, they face:

  • Late fees of ₹100 per day per Act (CGST and SGST), subject to a maximum of ₹5,000.

  • The return must still be filed even if no TDS was deducted in a given period.


Importance of Timely Compliance

Timely compliance with TDS rules under GST helps:

  • Avoid financial burden due to penalties and interest.

  • Maintain trust with suppliers who claim TDS credit.

  • Ensure smooth functioning of the GST system.


Conclusion

The penalty for failure to comply with TDS compliances under GST can be severe. Deductors must deduct TDS, deposit it within the due date, file GSTR-7, and issue TDS certificates to suppliers. Non-compliance not only attracts penalties but also disrupts credit flow in GST. Staying compliant is always the smarter choice.

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