Understanding the Standard Operating Procedure for TDS under GST

The Central Board of Indirect Taxes and Customs (CBIC) has released a Standard Operating Procedure (SOP) to clarify various aspects of Tax Deducted at Source (TDS) under the Goods and Services Tax (GST) framework. Under GST law, specific registered entities must deduct tax when paying suppliers and subsequently remit it to the government. Any registered person responsible for deducting TDS under GST is obligated to file a return using Form GSTR-7.

Understanding Supply under GST and Taxable Value

The SOP for TDS under GST clarifies that, according to Section 7 of the CGST Act, supply for TDS purposes includes goods and services provided to government departments and other entities identified as liable to deduct TDS under GST law.

These designated entities are required to deduct TDS if the total value of supply for a particular contract, involving taxable goods or services or both, exceeds INR 2,50,000. This value explicitly excludes Central Tax, State Tax, Union Territory Tax, Integrated Tax, and Cess.

Consider these examples to understand the value of supply as per the TDS under GST SOP:

Conditions and Rates for Tax Deduction

The SOP for TDS under GST specifies that tax deduction is mandatory if all the following criteria are met:

• The total taxable value of supply under a single contract surpasses INR 2,50,000, excluding Central Tax, State Tax, Union Territory Tax, Integrated Tax, and Cess.
• If a contract includes both taxable and exempted supplies, deduction will only apply to the total value of the taxable supply, provided its contract value exceeds INR 2.5 lakh.
• The applicable tax rates for different supply natures are detailed in the table below:

• Tax must be deducted on advance payments made to a supplier on or after October 1, 2018, for the provision of taxable goods or services, or both.

Instances Where TDS Under GST is Not Applicable

The SOP for TDS under GST also clarifies situations where TDS deductions are not required:

• When the total taxable value of supply is INR 2,50,000 or less.
• For the receipt of goods or services exempted by notifications No. 12/2017 and 2/2017, dated June 28, 2017, including subsequent amendments.
• For goods not subject to GST, such as petrol, diesel, petroleum crude, and natural gas.
• For all activities classified as neither a supply of goods nor services under Schedule III of the CGST/SGST Acts, 2017, regardless of their value.
• When payments relate to tax invoices issued before October 1, 2018.
• In cases where the recipient is responsible for paying tax under the reverse charge mechanism (i.e., the deductee).
• For payments made to unregistered suppliers.
• For payments related to the 'Cess' component.
• When the deductor's state/UT differs from both the supplier's location and the place of supply.
• For advance payments made before October 1, 2018, even if the tax invoice is issued on or after that date, only to the extent of such advance.

Mandatory Registration for TDS Deductors under GST

Section 24(vi) of the CGST Act, 2017, mandates registration for all entities required to deduct TDS. Existing deductors under VAT will not be automatically transitioned to GST. Here is a step-by-step guide for registering TDS deductors under GST:

Step 1: Entering User Credentials

1. Visit the official GST portal.
2. Navigate to "Services" > "Registration" > "New registration".
3. Select 'Tax Deductor' under applicant type and choose between "I have PAN" or "I have TAN." Enter your TAN.
4. Specify your state and district.
5. Enter the legal name as it appears on your TAN.
6. Provide your mobile number and email address.
7. Complete the captcha verification and click "Proceed." You will then be directed to the next page, and two One-Time Passwords (OTPs) will be sent: one to your mobile number and one to your email address.

Step 2: OTP Verification

1. Input both OTPs into their respective fields and click "Proceed."
2. A Temporary Reference Number (TRN) will be generated. Click "Proceed" again.

Step 3: Completing the Registration Form: TRN Entry

1. Revisit the GST portal.
2. Navigate to "Services" > "Registration" > "TRN".
3. Enter your TRN and the captcha code.
4. Click "Proceed."

Step 4: Final OTP Verification for Form Submission

1. A single OTP will be dispatched to both your mobile number and email ID. Enter this OTP and click "Proceed."
2. The "My Saved Applications" page will appear. Click the "pen icon" under the "Action" field to begin filling out the details. The application form, GST REF-7, comprises five distinct tabs:

• Business Details: Update office specifics, government type, etc. Some fields like email, legal name, and mobile number will be auto-populated. Select state jurisdiction details from the dropdown menu, then click 'Save'.
• Drawing and Disbursing Officer (DDO) Details: This tab has three sections. First, enter the DDO's basic information such as name and mobile number. Second, input the DDO's designation, PAN, and Aadhaar. Third, enter the residential address, upload a photograph, select the authorized signatory, and click 'Save'.
• Authorized Signatory Details: The DDO's information will be automatically populated here. Click 'Save' and continue.
• Office Address Details: In the first part, enter the DDO's office address. In the second part, provide office contact details. Choose the nature of possession and upload proof of address. Then, click 'Save' and continue.
• Verification: Check the verification box. Select the DDO's name, input the place, and choose to sign either with a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC). Click 'Proceed'. A confirmation message will confirm successful submission, and an acknowledgment will be displayed.

Process for TDS Payment

The SOP for TDS under GST outlines the payment procedure, which largely mirrors the VAT system. Under GST, a unified portal facilitates registration, payments, and return filings. Deductors must generate a challan on the official GST portal and deposit the deducted tax through e-payment methods (Net Banking, Debit/Credit Card, NEFT/RTGS) or over-the-counter (OTC) modes (Cash, Cheque, Demand Draft).

Filing and Submission of TDS Returns

The SOP for TDS under GST provides detailed instructions regarding the GSTR-7 return.

Return and Time Limit: Every registered TDS deductor is required to file Form GSTR-7 electronically by the 10th of the month following the month in which deductions were made. This can be done online or offline. Deductions made on or after October 1, 2018, but before the date of registration, must be included in the first return filed after obtaining registration.

Payment via Challan: Tax amounts deposited through a challan will be credited to the deductor's electronic cash ledger. The deductor is then required to fulfill their liability by debiting this electronic cash ledger.

Certificate Issuance: The deductor must issue a system-generated certificate to the deductee in Form GSTR-7A. This certificate should include details such as the contract value, deduction rate, deducted amount, and the amount paid to the government. This certificate must be provided within five days of the deducted amount being credited to the government, which means within five days of filing Form GSTR-7.

Credit Claim by Deductee: Once Form GSTR-7 is submitted, the deducted amount will become visible in the deductee's Form GSTR-2A/4A and will be reflected in their electronic cash ledger. The deductee can then utilize this amount to discharge their own tax liabilities.

Penalties, Interest, and Late Fees for TDS under GST

The SOP for TDS under GST specifies two scenarios that incur late fees:

1. If the deductor fails to file Form GSTR-7 within 10 days of the month following the deduction: A late fee of INR 100 per day is charged separately under both the CGST Act and the SGST/UTGST Act for the duration of the delay.
2. If the deductor fails to provide the TDS certificate to the deductee within five days of crediting the deducted amount to the government: A late fee of INR 100 per day is imposed separately under both the CGST Act and the SGST/UTGST Act, starting after the initial five-day period, for as long as the failure continues.

In both instances, the maximum late fee is capped at INR 5,000 under the CGST Act and INR 5,000 under the SGST/UTGST Act.