Tax Deducted at Source (TDS) under GST refers to the mechanism where a specified person deducts tax at a fixed percentage while making payments to a supplier of goods or services. This concept helps the government track transactions and ensures better tax compliance.
Under the Goods and Services Tax (GST) system in India, TDS is applicable when certain notified entities (such as government departments, public sector undertakings, and local authorities) make payments exceeding ₹2.5 lakh to a registered supplier. In such cases, they are required to deduct 2% of the payment (1% CGST + 1% SGST or 2% IGST) and deposit it with the government.
The deducted tax must be deposited by the 10th of the following month, and the details must be reported in GSTR-7. The supplier can view this deduction in their electronic cash ledger and use it for paying their GST liability.
Why TDS under GST matters for businesses:
- For deductors (like government agencies or notified bodies): Ensures proper tax withholding and timely filing to avoid penalties.
- For suppliers: It provides a way to track the tax deducted and claim it as credit, which can be used against future tax payments.
- For compliance: Both deductors and suppliers must ensure accurate TDS reporting to stay compliant with GST regulations.
TDS under GST does not apply to all transactions. It's specific to certain entities and transaction amounts, so it's important for businesses—especially those dealing with government contracts or public sector clients—to be aware of this provision.
If you're a small business or startup trying to understand your TDS obligations or need assistance with GST filings, FinTax24’s GST Solutions offer reliable support to ensure compliance and peace of mind.