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Tax Deducted at Source (TDS) is a key component of India’s taxation framework, designed to ensure timely tax collection at the point of income generation. Under the Goods and Services Tax (GST) regime, TDS provisions apply to specific transactions, making it mandatory for certain businesses to deduct tax when making payments. The deducted amount must then be deposited with the government via the GST portal and accurately reported in the TDS return. Suppliers can claim credit for this amount in their GST filings, promoting smoother compliance and greater transparency.
In this article, you’ll learn how to deduct TDS on a GST bill and explore other essential aspects of the process. For a hassle-free experience with TDS deduction, deposit, and return filing under GST, get expert assistance from IndiaFilings
What is TDS Deduction?
Tax Deducted at Source (TDS) is a system established by the Income Tax Department to facilitate tax collection at the point of income generation. In this mechanism, a predetermined percentage is deducted by the payer from payments such as salary, interest, commission, rent, or professional fees and is directly deposited with the government on behalf of the payee. TDS helps maintain a steady flow of tax revenue and reduces the risk of tax evasion. The amount deducted can be claimed by the payee while filing their income tax return and is adjusted against their total tax liability.
Why TDS Deduction is Important
TDS plays a vital role in ensuring an efficient and transparent tax system. Here’s why it’s essential:
Timely Tax Collection: Ensures regular tax inflow, reducing the burden of year-end collections.
Minimizes Tax Evasion: Reduces the opportunity to conceal income by deducting tax at the source.
Promotes Transparency: Provides a recorded trail of income and tax payments.
Encourages Regular Return Filing: Motivates taxpayers to maintain proper records and file returns on time.
Offsets Final Tax Liability: The TDS amount is credited to the taxpayer’s account and reduces the overall tax payable
Who Must Deduct TDS Under GST?
Under the GST regime, TDS must be deducted by specific entities on payments made to suppliers when the total value under a single contract exceeds ₹2.5 lakh. These include:
Central or State Government Departments/Establishments
Local Authorities – such as municipal corporations and panchayats
Government Agencies – functioning under central or state authority
Notified Persons/Categories – as designated by the government from time to time
TDS Rates Under GST
TDS is to be deducted at 2% on the value of taxable goods or services (excluding GST), for contracts exceeding ₹2.5 lakh. This 2% is split as:
1% for CGST
1% for SGST
In cases involving inter-state supply, the entire 2% is deducted under IGST
How to Deduct TDS on a GST Bill – Step-by-Step
Verify Contract Value: Ensure the total value exceeds ₹2.5 lakh.
Check GST Registration: Both deductor and supplier must be registered under GST.
Calculate Taxable Amount: TDS is calculated on the supply value excluding GST.
Deduct TDS: Apply 2% (1% CGST + 1% SGST or 2% IGST).
Deposit the TDS: Submit the amount to the government within the due date.
File TDS Return: File Form GSTR-7 and issue a TDS certificate (Form GSTR-7A) to the supplier.
Example of TDS Deduction on a GST Invoice
Scenario: A government department contracts a supplier for ₹4,50,000 worth of goods at an 18% GST rate.
Contract Value (Excl. GST): ₹4,50,000
GST @18%: ₹81,000
Total Invoice: ₹5,31,000
TDS @2% on ₹4,50,000: ₹9,000
Final Payment to Supplier: ₹5,31,000 – ₹9,000 = ₹5,22,000
TDS is calculated before GST is added, and the deducted amount is deposited with the government
TDS Deposit & Return Filing Process
Deposit Deadline: TDS must be deposited by the 10th of the following month.
Return Filing: Use Form GSTR-7 to file TDS details on the GST portal.
Issue of TDS Certificate: Provide Form GSTR-7A to the supplier within 5 days of depositing TDS.
The deducted amount reflects in the supplier’s Form GSTR-2A, and can be claimed as credit in their electronic cash ledger to offset future tax liabilities
Penalties for Non-Compliance with TDS Provisions
Failure to comply with GST TDS rules may lead to penalties, including:
Non-Deduction of TDS: Attracts interest and recovery as per the GST Act.
Delayed Certificate Issuance: ₹100 per day (up to ₹5,000) if Form GSTR-7A isn’t issued within 5 days.
TDS Deducted but Not Paid: Interest liability along with recovery of TDS amount.
Late TDS Return Filing: ₹100 per day (maximum ₹5,000) until the return is filed
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May 31, 2025
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