How to Deduct TDS on GST Bill?

Tax Deducted at Source (TDS) is an essential aspect of the Indian taxation system, designed to collect tax at the very source of income. Under the Goods and Services Tax (GST) regime, TDS provisions are applicable to certain specified transactions. While making the payment, deduct TDS and deposit it with the government using the GST portal. The deducted TDS must be reported in the TDS return, and the supplier can claim the credit of this amount in their GST return.

What is TDS?

TDS stands for Tax Deducted at Source. It’s a method where tax is deducted at the point of income generation. This ensures that taxes are collected on time and reduces the chances of tax evasion. The tax deducted is then paid to the government by the entity that deducts the tax.

What is GST?

GST stands for Goods and Services Tax. It is a comprehensive indirect tax on the supply of goods and services in India, replacing multiple indirect taxes previously levied by the central and state governments. GST is designed to simplify the taxation system and create a unified market.

TDS Under GST

Under the GST regime, specific provisions have been made for TDS to be deducted by certain entities. The objective is to track transactions and ensure that taxes are collected efficiently. As per the GST law, TDS is to be deducted by:

1. Departments or establishments of the Central or State Government.
2. Local authorities.
3. Governmental agencies.
4. Persons or categories of persons notified by the Government on the recommendations of the GST Council.

How to Calculate TDS on GST Bill

When is TDS on GST Applicable?

TDS under GST is applicable when the total value of supply under a contract exceeds INR 2,50,000. It is important to note that this threshold limit is for a single contract and not for aggregate supplies.

TDS Rate Under GST

The TDS rate under GST is 2% of the payment made to the supplier. This 2% is split into:

• 1% CGST (Central Goods and Services Tax)
• 1% SGST (State Goods and Services Tax)

For inter-state supplies, the TDS rate is 2% IGST (Integrated Goods and Services Tax).

Steps to Calculate TDS on GST Bill

1. Identify the Contract Value: Check if the total value of supply under a contract exceeds INR 2,50,000.
2. Verify GST Registration: Ensure that both the deductor (person deducting TDS) and the deductee (supplier) are registered under GST.
3. Determine the Amount to be Paid: Calculate the amount to be paid to the supplier, excluding GST.
4. Calculate TDS: Deduct TDS at the rate of 2% on the amount payable to the supplier, excluding GST.
5. Deposit TDS: Deposit the deducted TDS with the government within the specified time frame.
6. File TDS Returns: File TDS returns in Form GSTR-7 and issue a TDS certificate in Form GSTR-7A.

Example of How to Calculate TDS on GST Bill

Let’s understand how to calculate TDS on a GST bill with an example.

Example Scenario

Suppose a government department enters into a contract with a supplier for goods worth INR 3,00,000. The applicable GST rate is 18%.

Step-by-Step Calculation

1. Contract Value: INR 3,00,000
2. GST Amount: 18% of INR 3,00,000 = INR 54,000
3. Total Invoice Value: INR 3,00,000 + INR 54,000 = INR 3,54,000
4. Amount Excluding GST: INR 3,00,000
5. TDS Calculation: 2% of INR 3,00,000 = INR 6,000
   • CGST (1%): INR 3,000
   • SGST (1%): INR 3,000

The TDS to be deducted is INR 6,000, and the payment to the supplier after deducting TDS would be:

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Payment to Supplier: INR 3,54,000 – INR 6,000 = INR 3,48,000

Depositing and Filing TDS

After deducting TDS, the government department must deposit the TDS amount of INR 6,000 with the government. The TDS deducted should be deposited by the 10th of the following month. Additionally, the department must file TDS returns in Form GSTR-7 and issue a TDS certificate in Form GSTR-7A to the supplier.

Why TDS Compliance is Important?

Following TDS rules under GST is crucial for businesses and government entities to avoid penalties and legal issues. Here are some key points to ensure compliance:

1. Timely Deduction and Deposit: Ensure that TDS is deducted and deposited on time.
2. Accurate Calculation: Verify the accuracy of TDS calculations.
3. Regular Filing of Returns: File TDS returns (GSTR-7) on time to avoid penalties.
4. Issuance of TDS Certificates: Provide TDS certificates (GSTR-7A) to the supplier.

What are the Benefits of TDS on GST?

TDS on GST offers several benefits:

For the Government

1. Efficient Tax Collection: TDS ensures timely tax collection.
2. Tracking Transactions: Helps track high-value transactions and reduce tax evasion.
3. Revenue Growth: Contributes to steady government revenue growth.

For Taxpayers

1. Transparency: Creates a transparent tax environment.
2. Credit Availability: Suppliers can claim TDS credit against their tax liabilities.
3. Compliance: Promotes compliance with tax laws.

Challenges in Implementing TDS on GST Bills

While TDS on GST offers advantages, it also presents some challenges:

Complex Calculations

Calculating TDS on GST can be complex, especially with multiple contracts and different GST rates. Accurate calculations are necessary to avoid discrepancies and penalties.

Compliance Burden

Filing TDS returns and issuing certificates require meticulous record-keeping and adherence to deadlines, which can be burdensome for small businesses and government departments.

Technological Challenges

Ensuring seamless integration of TDS processes with existing accounting and taxation software can be challenging. Technological upgrades may be required for efficient TDS calculations and filings.

Conclusion

Deducting TDS on GST bills is an important compliance requirement under the GST regime. Understanding the process, calculating TDS accurately, and adhering to compliance norms are essential for businesses and government entities. By following the guidelines provided in this blog, taxpayers can ensure smooth and efficient TDS deductions on GST bills, contributing to a transparent and robust taxation system.

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