Tax Deducted at Source (TDS) Under Goods and Service Tax

TDS under GST is a mechanism where certain entities deduct a specified percentage of tax before making payments to suppliers. It applies to government entities and notified persons for contracts over ₹2,50,000 at a 2% rate. It ensures tax compliance and smooth transaction tracking.

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TDS on GST rate is a compliance measure where specific entities, including government departments and notified persons, must deduct tax on payments for goods and services. The purpose of this measure is to ensure tax is collected at the source, improving compliance and reducing tax evasion.

For contracts over ₹2,50,000, a TDS rate of 2% is applicable, which is divided into 1% CGST and 1% SGST, or 2% IGST for inter-state transactions. Entities required to deduct TDS must register for a unique GSTIN. With the 2025 Budget updates, the government has simplified the registration and compliance process, ensuring easier TDS remittance and timely supplier credit claims.

To ensure smooth tax collection and settlement, Tax Deducted at Source (TDS) under the Goods and Services Tax (GST) regime serves as a critical compliance mechanism. This system improves transparency and helps in the efficient collection and settlement of taxes. By requiring tax deductions at the source, TDS under GST plays a key role in maintaining smooth tax compliance.

What is TDS under GST?

Tax Deducted at Source (TDS) under GST is a system where a certain percentage of tax is deducted from the payment made to a supplier of goods or services. This deducted tax is then deposited with the government as revenue.

The rules for TDS under GST are outlined in Section 51 of the CGST Act, along with Rule 66 of the CGST Rules. It helps in tracking transactions and ensuring timely tax collection.

Latest Updates

The government mandates TDS under GST for specific transactions above a certain limit. Recent updates in the Union Budget 2025 have introduced key changes to simplify compliance and improve tax collection.

1st February 2025

The Union Budget 2025 has abolished Sections 206AB and 206CCA, which previously mandated higher TDS rates for non-filers of income tax returns. Now, a standard TDS rate applies to all taxpayers.

The TDS deduction limits have been increased for various transactions:

Interest on Deposits for Senior Citizens: The exemption limit has been raised from ₹50,000 to ₹1,00,000 per annum.
TDS on Rent Payments: The threshold for deducting TDS has been increased from ₹2,40,000 lakh to ₹6,00,000 per annum.

TDS deductors registered solely for this purpose do not need to issue a self-invoice under Section 31(3)(f) of the CGST Act (clarification confirmed in Budget 2025).

Who Could be Liable to Deduct TDS Under GST Law?

The following entities are liable to deduct TDS under the GST law:

A department or establishment of the Central or State Government
Local authorities
Governmental agencies
Persons or categories of persons notified by the Government

These entities typically make significant payments to suppliers and contractors, thus ensuring a consistent flow of Tax revenue.

Liability to Deduct TDS under GST and TDS Rate

Under GST, TDS (Tax Deducted at Source) must be deducted at a rate of 2% on payments made to suppliers for taxable goods or services. This deduction applies only when the value of supply under a single contract exceeds ₹2,50,000.

However, if the supplier’s location and the place of supply differ from the state where the recipient is registered, TDS is not required to be deducted. This ensures TDS is applied only in relevant transactions, making compliance straightforward.

How to Deduct TDS on GST Bill Example?

Let us understand how to deduct TDS under GST with a different example: a Mumbai municipal corporation hires a contractor (XYZ) to repair roads. The contract value is ₹3,00,000, and the applicable GST rate is 12%. The calculation steps are shown below:

Details	Amount (₹)
Contract Value (excluding GST)	₹3,00,000
GST @ 12%	₹36,000
Total Invoice Value	₹3,36,000
TDS @ 2% on ₹3,00,000	₹6,000
CGST (1%)	₹3,000
SGST (1%)	₹3,000
Amount Paid to Contractor	₹3,36,000 - ₹6,000 = ₹3,30,000

This example shows how simple the process is when you follow the rules. Here is an explanation for the same:

TDS is calculated only on the contract value, excluding the GST portion (₹3,00,000 in this case).
GST (₹36,000) is not included in the TDS calculation.
The contractor (XYZ) will receive ₹3,30,000 after TDS is deducted.
The deducted amount (₹6,000) must be deposited with the government by the municipal corporation by the 10th of the following month and reported in Form GSTR-7 as per the latest compliance guidelines from Budget 2025.

When will the Liability to Deduct TDS be Attracted? What is the Rate of TDS?

The liability to deduct TDS arises when the total supply value under a contract exceeds ₹2,50,000, exclusive of GST. The rate of TDS on GST is 2% (1% CGST and 1% SGST or 2% IGST for inter-state supplies).

What are the Registration Requirements for TDS Deductors?

Entities liable to deduct TDS must register for TDS under GST. They need to obtain a Tax Deduction and Collection Account Number (TAN) and apply for registration through the GST portal. This registration is mandatory, and the deductors are provided with a unique GST Identification Number (GSTIN) specific to TDS purposes.

When and to Whom Should the TDS be Paid?

The deducted TDS amount must be deposited with the government by the 10th of the succeeding month. Payment is made through the GST portal, ensuring timely credit to the government’s account and avoiding any interest or penalties for delayed payments.

What are the Provisions Relating to the Issue of TDS Certificates Under the GST law?

Upon deduction of TDS, the deductor is required to file Form GSTR-7 by the 10th of the succeeding month. Once filed, a system-generated TDS certificate in Form GSTR-7A becomes available, detailing the amount deducted and the payment made to the government. The deductee can view and download this certificate from the GST portal and use it to claim the deducted amount as credit in their GST returns.

How will the Value of Supply on Which TDS Shall be Deducted be Considered?

TDS is deducted from the taxable value of the supply under the contract, excluding the GST component. This ensures that the tax amount is not subjected to further deduction, preventing cascading effects and maintaining transaction clarity.

Which Form is Required to File the TDS Return?

The TDS deductor must file a return in Form GSTR-7. This return includes details of the TDS deducted and the amount paid to the government. The due date for filing GSTR-7 is the 10th of the month following the month in which TDS was deducted.

What is the Benefit of TDS to the Deductee (Supplier)?

The primary benefit to the deductee is the availability of TDS credit. The deducted TDS amount is reflected in the deductee’s Electronic Cash Ledger, allowing them to claim it while discharging their GST liabilities. This mechanism ensures timely tax credits and reduces suppliers’ cash flow burden.

Penalties for Not Complying with TDS Provisions under GST

Non-compliance with TDS provisions under GST attracts penalties. Understanding these penalties can help ensure timely compliance with GST TDS provisions, avoiding unnecessary costs. Below-given is a simplified table that explains the penalties for different non-compliance scenarios:

Scenario No	Scenario	Penalties
1	TDS not deducted	Interest will be charged at 18%, along with the TDS. If not paid, the amount will be recovered according to the law.
2	TDS certificate not issued or delayed beyond 5 days	A late fee of ₹100 per day will be charged, with a maximum cap of ₹5,000 under each Act.
3	TDS deducted but not paid to the government or paid after the 10th of the next month	Interest will be charged at 18%, along with the TDS, from the day after the return filing deadline until the actual payment date. If not paid, the amount will be recovered according to the law.
4	Late filing of TDS return	A late fee of ₹100 per day of delay will be charged, with a maximum cap of ₹5,000 under each Act.

How to Get a TDS Refund under GST?

TDS refunds can be claimed by filing a refund application in Form RFD-01. The deductee must provide details of the TDS deducted and that way, you can claim a TDS refund. The application is processed by the tax authorities, and the refund is credited to the deductee’s bank account after verification.

FAQ on TDS under GST

Whether separate GSTN would be allotted to a registered person for deducting TDS?

Yes, a separate GSTIN is allotted to deduct TDS. This ensures proper tracking and accounting of TDS transactions separately from regular GST transactions.

What shall be the threshold limit over which tax has to be deducted?

The threshold limit for TDS deduction is when the value of supply under a contract exceeds ₹2,50,000, exclusive of GST.

What is the value on which tax is required to be deducted?

Tax is required to be deducted from the taxable value of the supply, excluding GST.

What shall be the rate of tax to be deducted?

The rate of TDS under GST is 2%, with 1% CGST and 1% SGST for intra-state supplies or 2% IGST for inter-state supplies.

Would a separate GSTIN be allotted to a registered person for deducting TDS (he has PAN and TAN as well)?

Yes, a separate GSTIN is allotted for TDS purposes, even if the person has a PAN and TAN. This GSTIN is specifically used for TDS-related transactions and filings.

Tax Deducted at Source (TDS) Under Goods and Service Tax

What is TDS under GST?

Latest Updates

Who Could be Liable to Deduct TDS Under GST Law?

Liability to Deduct TDS under GST and TDS Rate

How to Deduct TDS on GST Bill Example?

When will the Liability to Deduct TDS be Attracted? What is the Rate of TDS?

What are the Registration Requirements for TDS Deductors?

When and to Whom Should the TDS be Paid?

What are the Provisions Relating to the Issue of TDS Certificates Under the GST law?

How will the Value of Supply on Which TDS Shall be Deducted be Considered?

Which Form is Required to File the TDS Return?

What is the Benefit of TDS to the Deductee (Supplier)?

Penalties for Not Complying with TDS Provisions under GST

How to Get a TDS Refund under GST?

FAQ on TDS under GST

Whether separate GSTN would be allotted to a registered person for deducting TDS?

What shall be the threshold limit over which tax has to be deducted?

What is the value on which tax is required to be deducted?

What shall be the rate of tax to be deducted?

Would a separate GSTIN be allotted to a registered person for deducting TDS (he has PAN and TAN as well)?

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