The concept of Tax Deducted at Source (TDS) under the Goods and Services Tax (GST) system was introduced vide notification no.33/2017-Central Tax Dated 15-09-2017 to ensure transparency in tax collection and to prevent tax evasion. TDS under GST is governed by Section 51 of the Central Goods and Services Tax (CGST) Act, 2017. However, section 51 of CGST Act. 2017 was kept in abeyance for specific period and finally came into force w.e.f. 01-10-2018 vide notification no.50/2018-Central Tax Dated 13-09-2018. It requires certain specified entities to deduct tax while making payments to suppliers for taxable goods or services or both. The deducted amount is then deposited with the government. This mechanism helps the government & tax authorities to track transactions and ensures that suppliers properly report their supplies and pay taxes.

TDS under GST refers to the deduction of a certain percentage of tax by the recipient of goods or services at the time of making payment to the supplier. The main objective of this provision is to create a system of early tax collection and improve compliance among suppliers. By deducting tax at the source, the government can monitor transactions between suppliers and recipients more effectively. Another important purpose of TDS is to maintain transparency in high-value government or institutional transactions. Since government departments and public authorities are involved in large-scale procurement, deducting tax at the source ensures that suppliers correctly report their turnover and tax liability.

Persons Liable to Deduct TDS:

Under Section 51 of the CGST Act, specific entities are required to deduct TDS when making payments to suppliers. These include:

A department or establishment of the Central Government or State Government,

Governmental agencies

Such persons or categories of persons as may be notified by the government on the recommendations of council

In addition, public sector undertakings and authorities with significant government participation may also be notified for TDS deduction by the Government on the recommendations of the GST Council. These entities must deduct tax when making payments for taxable supplies that exceed the prescribed threshold limit.The rate of TDS under GST is 2% of the payment made to the supplier. This rate is divided as 1% under CGST & 1% under SGST heads respectively.

In the case of inter-state supply, the deduction is 2% under IGST. The deduction is calculated on the value of supply excluding the tax component i.e. GST amount mentioned in the invoice.

For example, if the value of supply is ₹300,000 and GST is ₹54,000, TDS will be calculated only on ₹3,00,000/= only and not on the GST portion to avoid cascading effect. TDS under GST is applicable only when the value of supply under a contract exceeds ₹2,50,000 (Rs. two lacs & fifty thousand) excluding GST. If the total value of........

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