top of page

File Your ITR now

FILING ITR Image.png
Search

How to Deduct TDS on GST Bill

  • Writer: Rashmita Choudhary
    Rashmita Choudhary
  • Mar 31
  • 7 min read
How to Deduct TDS on GST Bill

To collect taxes at the exact source of income, Tax Deducted at Source (TDS) is a crucial component of the Indian tax system. Certain transactions are subject to TDS provisions under the Goods and Services Tax (GST) regime. Deduct TDS at the time of payment and use the GST portal to deposit the money with the government. The supplier may claim the credit of the amount of TDS deducted from their GST return, and it must be reported in the TDS return.

Table of content

Understanding TDS on GST Bill

Before diving into the nuances, it's crucial to grasp the fundamentals of TDS and GST. The government collects taxes at the source of income using a device known as TDS. The Goods and Services Tax (GST) governs Indian goods and services. In a transaction with the government, the payer (who deducts TDS) must deposit a certain percentage. This deduction guarantees that tax is paid in full and reduces the likelihood of tax evasion.


What is TDS Deduction?

The Income Tax Department uses Tax Deducted at Source (TDS) to guarantee tax collection at the point of income generation. This system involves the payer deducting a predetermined percentage of the payment—such as salary, interest, commission, rent, or professional fees—and sending it directly to the government on behalf of the payee. By collecting taxes ahead, TDS reduces tax evasion and promotes a consistent tax revenue inflow. The amount deducted can be deducted from the payee's final tax liability when they file their income tax return.


Importance of TDS Deduction

The following are some of the factors that highlight how crucial TDS deduction is:

  • Assures Timely Tax Collection: By preventing year-end tax obligations, TDS helps the government collect taxes on a timely and reliable basis.

  • Prevents Tax Evasion: It reduces the opportunity for underreporting income or tax evasion by taking taxes out at the source.

  • Promotes Transparency: The deduction guarantees a transparent path for the taxpayer and the government since it is documented and reported.

  • Frequent Return Filing: By keeping track of their earnings and taxes withheld, people and organizations encourage the timely filing of income tax returns.

  • Adjustable Against Final Tax Liability: the TDS amount lowers their final tax liability by crediting the taxpayer's account.


Steps to Deduct TDS on GST Bills

Let's explore the process of deducting TDS from GST bills. This section will cover everything you need to know, from when to deduct TDS to how to figure out the correct amount.


Step 1: Finding the Proper Transactions for TDS Deduction

TDS cannot be subtracted from the GST bill for every transaction. You must first determine whether the transaction is eligible for a TDS deduction. Typically, TDS is necessary when:

  • GST applies to the supply of goods or services.

  • Without GST, the supply is worth over 2.5 lakhs.

  • The recipient is a government agency, local government agency, or government department.

Before beginning the TDS deduction, confirm that your transaction meets these requirements.


Step 2: How to Determine a GST Bill's TDS

Assume a government agency agrees with a supplier for goods worth INR 40,000,000.00. The applicable GST rate is 18%. It calculates using the steps below:

  • Value of Contract: INR 4,00,000

  • GST Amount: INR 72,000 (18% of INR 4,00,000)

  • INR 4,00,000 + INR 72,000 = INR 4,72,000 is the total invoice value.

  • TDS computation: INR 8,000 (2% of INR 4,00,000)

The amount that must paid to the supplier after TDS gets subtracted is INR 8,000.

  • Supplier payment: INR 4,72,000 minus INR 8,000 equals INR 4,64,000


Step 3: The TDS Certificate Is Issued

A TDS certificate must be sent to the supplier each time TDS gets withheld. This document certifies that you are able to pay taxes to the government and have them withheld at the source. The TDS certificate must be issued within five days of receiving the TDS deposit. Information such as the transaction value, the GST IN, your GSTIN, and the TDS amount must all be included in the certificate.


Step 4: Making a government TDS deposit

Next, it is crucial to deposit the TDS amount with the government. The amount withheld must be deposited by the tenth of the month following the month in which the TDS was withheld. The GST portal is used for payment processing. Be sure to fill out the information as you make the payment. As proof of payment, the GST portal will generate a challan.


Step 5: TDS Return Submission

The TDS return must be filed as the final step in the process. Form GSTR-7, which is designated specifically for GST TDS reporting, should be used to document the TDS return. It is necessary to document this form by the tenth of the subsequent month. Undoubtedly, the challan number, the TDS amount, the transaction value, and the supplier's GSTIN are the details considered for this form. After the TDS return gets recorded, the amount withheld will appear on the supplier's electronic cash ledger. The TDS deducted can credited to the supplier's output tax liability.


Deduction of TDS on GST Bills Example

A government agency agrees with a supplier for Rs. 4,50,000 worth of goods. The applicable GST rate is 18%.


Breakdown of the Calculations:

  • The contract is worth Rs. 4,50,000.

  • Rs. 4,50,000 × 18% = Rs. 81,000 is the GST (18%).

  • The total invoice value is Rs. 5,31,000 (Rs. 4,50,000 + Rs. 81,000.

  • Rs. 4,50,000 is the amount excluding GST.


Calculating TDS:

  •  The TDS rate is 2% of the total amount, GST excluded.

  •  Rs. 4,50,000 × 2% = Rs. 9,000 is the TDS amount.


TDS deduction: The entire amount paid to the supplier is Rs. 5,31,000 minus Rs. 9,000, or Rs. 5,22,000. This illustration shows how TDS is subtracted from the contract value before GST, guaranteeing that the deduction gets reflected in the supplier's final payment.


TDS on GST Bills in Special Cases

Certain situations may necessitate special processing for TDS on GST bills. Here's how to deal with a few of these scenarios:


  • Advance Payments: Paying suppliers in advance helps to avoid TDS deductions at the time of payment. TDS should be withheld only when the supplier produces an invoice with a taxable supply rate.


  • Multiple Invoices: Even if many invoices get generated for a single agreement or contract, TDS must be subtracted from each invoice separately. However, if the total value of all the invoices combined exceeds Rs. 2.5 lakhs, TDS is applicable.


Penalty for Non-Compliance with TDS Provisions under GST

Businesses and individuals may be penalized for noncompliance with the TDS provisions under the GST. The following are the repercussions for breaking the TDS regulations:


  • Not Deducting TDS: If the interest is non-deducted, it applies to the TDS amount. Additionally, the amount will be calculated and retrieved under the relevant laws.


  • Non-Issuance or Delayed TDS Certificate: A late fee of Rs. 100 per day, up to a maximum of Rs. 5,000, will be applied if the TDS certificate (Form GSTR-7A) is not issued within the allotted 5-day period.


  • TDS Deducted but Not Paid to the Government: Interest will be assessed in addition to the TDS amount if TDS is withheld but not paid to the government or if payment is done the tenth of the next month. Additionally, the amount will be calculated and retrieved following the law.


  • Late TDS Return Filing: A penalty of Rs. 100 per day, up to a maximum of Rs. 5,000, will be applied for each day a TDS return is filed after the deadline.


Conclusion

To sum up, removing TDS from GST invoices guarantees adherence to regulations, expedites tax collection, and promotes transaction transparency. Businesses can ensure that they avoid penalties while maintaining the effectiveness of their tax procedures by following the specified processes and meeting the deadlines for filing returns and depositing TDS. Furthermore, the supplier can claim the amount withheld as credit thanks to the TDS certificate given to them, which aids in both parties' maintenance of correct tax records. For seamless operations within the tax system, it is crucial to comprehend and apply TDS deduction on GST bills, regardless of whether you are a government agency or a specific business.


FAQ

Q1. What is the TDS rate on a GST bill?

The TDS rate on a GST bill is 2%, with the CGST and SGST being split equally at 1% each. For interstate supplies, TDS gets subtracted from IGST at a rate of 2%.


Q2. When has TDS to be deducted from a GST bill?

In addition to GST, TDS must be subtracted when the total taxable supply value exceeds Rs. 2.5 lakhs. The deduction occurs at the time of payment or credit to the supplier's account, whichever comes first.


Q3. How do I deposit the deducted TDS amount?

The TDS amount has to be deposited with the government latest by the tenth of the next month. When paying in installments, create a challan using the GST input.


Q4. What happens if TDS is not deducted in time?

Penalties and interest are there for late TDS deductions. To prevent legal ramifications, deduct and remit Tax Deducted at Source (TDS) on time.


Q5. Can the supplier seek the credit for the TDS deducted?

The supplier is entitled to reimbursement for the TDS deducted. After filing the TDS return on Form GSTR-7, the supplier can use the deducted amount to offset their output tax liability, as it can be seen on their Electronic Cash Ledger.


Q6. Why is TDS deducted on GST Bills?

TDS is deducted on the GST bill to confirm that the government collects tax from the designated source of income and prevents tax evasion. Additionally, it facilitates transaction transparency and monitoring. When you deduct TDS from a GST bill, you need to deduct the correct amount and deposit it with the government. This method helps maintain a robust tax system and guarantees adherence to tax laws.


Related Posts

See All

Comments

bottom of page