Indian taxes basics: GST and TDS

GST (goods and services tax)

GST is a destination-based indirect tax on the supply of goods and services.

• Intra-state supply: CGST + SGST (split equally). Inter-state supply: IGST.
• Common rate slabs include 5%, 12%, 18% and 28%, plus special rates; rate structures are revised periodically, so always check the current notification for an item's HSN/SAC code.
• Input tax credit (ITC): a business can reduce its GST payable by the GST it paid on eligible purchases, if the supplier has reported the invoice and conditions are met.
• Returns: GSTR-1 (outward supplies), GSTR-3B (summary return and tax payment), with ITC matched against GSTR-2B.
• Invoices need the GSTIN, HSN/SAC code, taxable value, rate and tax amounts; e-invoicing and e-way bills apply above notified thresholds.

Example: a Pune company sells software services worth ₹1,00,000 to a Mumbai client at 18%. Intra-state (both in Maharashtra): CGST ₹9,000 + SGST ₹9,000. If the client were in Bengaluru: IGST ₹18,000.

TDS (tax deducted at source)

The payer deducts income tax when making certain payments (salary, contractor payments, professional fees, rent, commission, interest) and deposits it with the government. The payee claims credit for it (it shows in Form 26AS/AIS). The payer files quarterly TDS returns and issues TDS certificates (Form 16 for salary, Form 16A for others). Rates and thresholds depend on the section and are revised by the Finance Act, so verify the current rates.

Direct vs indirect tax

• Direct: paid by the person who earns (income tax, corporate tax).
• Indirect: collected by the seller from the buyer and passed to the government (GST, customs duty).

Tools

Tally Prime (very common in Indian SMEs): creating ledgers and groups, vouchers (payment, receipt, sales, purchase, journal, contra), GST setup and reports, bank reconciliation. Also Zoho Books, QuickBooks and SAP FICO in larger firms.

Check yourself

• A Delhi company sells goods worth ₹50,000 at 12% GST to a customer in Delhi and another in Jaipur. Compute the tax for each.
• What is input tax credit?
• Name three payments on which TDS may apply.