How to Deduct TDS on GST Bill? (with example)

TDS, or Tax Deducted at Source, is a mechanism in the Indian tax system designed to collect taxes at the time of payment. Under the GST regime, certain entities must deduct TDS when making payments for specific goods or services. In this article, we’ll explain how to deduct TDS on a GST bill and provide a clear, illustrative example.

Understanding TDS Under GST

Who is Liable to Deduct TDS?

Government departments, government agencies, local authorities, certain corporations, and other notified entities have the responsibility to deduct TDS under GST law.

When to Deduct TDS?

TDS deductions become necessary when the total value of a supply under a single contract exceeds ₹2.5 lakhs.

TDS Rate

The standard TDS rate under GST is 2% of the payment amount (excluding GST components). This 2% is divided into 1% under CGST (Central GST) and 1% under SGST (State GST) or IGST (Integrated GST), depending on the transaction type.

How to Deduct TDS on a GST Bill?

• Calculate the Contract Value: Determine the total value of the supply under a single contract. Exclude the CGST, SGST, IGST, and any applicable cess from this calculation.
• Apply the TDS Rate: If the contract value exceeds ₹2.5 lakhs, apply the 2% TDS rate to the base taxable value.
• Deposit the TDS: The deducted TDS must be deposited with the government using the appropriate GST forms and challans.
• Issue TDS Certificate: A TDS certificate (Form GSTR-7A) must be furnished to the supplier within 5 days of depositing the TDS.

Note: TDS provisions under GST are subject to updates and changes. Consult the latest guidelines on the official GST website for accurate information.

Calculating and Deducting TDS on a GST Bill

Let’s suppose a government department contracts a supplier for services worth Rs. 5,00,000. The applicable GST rate is 18%. Here’s how TDS is calculated:

• Base Value: Rs. 5,00,000
• GST (18%): Rs. 90,000
• Total Invoice Amount: Rs. 5,90,000
• TDS Rate (2%): 1% CGST + 1% SGST
• TDS Amount: Rs. 10,000 (2% of Rs. 5,00,000)
• Net Payment to Supplier: Rs. 5,80,000 (Rs. 5,90,000 – Rs. 10,000)

Understanding the TDS provisions under GST is essential for government entities and eligible organizations. By following these guidelines and the provided example, you can ensure proper TDS deductions and maintain compliance with GST regulations.

Note: The information provided is sourced from various websites and collected data; if discrepancies are identified, kindly reach out to us through comments for prompt correction.