TDS vs GST

Thanks to digitization, streamlined tax structures, and a greater emphasis on transparency, India’s taxation environment has changed dramatically in recent years. The two main tax procedures in this system, GST (Goods and Services Tax) and TDS (Tax Deducted at Source), are essential in determining how individuals and corporations handle their financial responsibilities. Understanding TDS vs GST is essential for ensuring legal compliance and avoiding needless fines, regardless of your status as an employee, freelancer, or business owner.

Despite the fact that they both entail collecting taxes, their goals, methods, and regulating legislation are very different. In this comprehensive guide, Tax consultant in Pune – Startup Portal Business Services breaks down the complete comparison between TDS and GST—covering their meaning, working, calculation, applicability, and compliance requirements for the 2025 financial year.

Understanding the Basics of the Indian Tax System:

The Indian taxation framework is primarily divided into two major categories — Direct Taxes and Indirect Taxes.

Direct Taxes: These are taxes imposed directly on an individual’s or organization’s income or profit. Examples include Income Tax and TDS (Tax Deducted at Source).
Indirect Taxes: These are levied on the consumption of goods and services, where the burden of tax is eventually borne by the end consumer. The most prominent example is GST (Goods and Services Tax).

While both TDS and GST are integral to India’s tax administration, they serve entirely different functions — one focuses on income-based tax collection, while the other ensures taxation on transactions involving goods and services.

What is TDS (Tax Deducted at Source)?

TDS, or Tax Deducted at Source, is a system under the Income Tax Act, 1961, designed to collect tax at the point where income originates. Instead of waiting until the end of the financial year, the government collects a portion of tax in advance through the payer of income.

Example:

Suppose a company pays ₹1,00,000 as professional fees to a consultant. The company must deduct 10% TDS (₹10,000) and deposit it with the government. The consultant then receives ₹90,000 and can claim the deducted amount as TDS credit while filing their Income Tax Return (ITR). This mechanism ensures a steady inflow of revenue for the government while reducing the chances of tax evasion.

Key points about TDS:

Collected on income like salary, rent, interest, commission, or professional fees.
Rates vary depending on the nature of payment and PAN availability.
Filed through quarterly TDS returns (Form 24Q, 26Q, 27Q).
Mandatory for businesses and individuals making specified payments.

What is GST (Goods and Services Tax)?

GST, or Goods and Services Tax, is an indirect tax introduced in 2017 that replaced multiple indirect taxes like VAT, excise, and service tax. It’s levied on the supply of goods and services across India.

Under GST, businesses collect tax from customers and remit it to the government, while availing Input Tax Credit (ITC) on taxes paid on purchases.

Types of GST:

CGST – Central Goods and Services Tax (for intra-state sales)
SGST – State Goods and Services Tax (for intra-state sales)
IGST – Integrated Goods and Services Tax (for inter-state sales)

TDS vs GST: Meaning and Concept Explained

While both TDS and GST are tax collection systems, their objectives are distinct:

TDS ensures advance collection of income tax from the income source itself.
GST ensures seamless taxation on goods and services across the supply chain.

In simple terms, TDS relates to income, while GST relates to consumption. That’s the core distinction when understanding TDS vs GST.

Difference Between GST and TDS:

Let’s break down the TDS and GST difference more clearly:

Understanding these differences helps taxpayers manage compliance efficiently and avoid double taxation confusion under TDS vs GST scenarios.

Applicability of TDS and GST in India:

When does TDS apply?

Salary payments exceeding taxable limits.
Contractor or professional payments above ₹30,000 per transaction.
Rent exceeding ₹2,40,000 per annum.
Interest, commission, or brokerage payments.

When does GST apply?

Annual turnover exceeding ₹40 lakhs (for goods) or ₹20 lakhs (for services).
Interstate supply of goods or services.
E-commerce operators and online platforms.
Reverse charge mechanisms (RCM) under specific categories.

TDS vs GST: When Both Apply Together

Certain transactions attract both TDS and GST, such as:

Professional fees: GST is charged on the invoice, and TDS is deducted from the total amount (excluding GST).
Rent payments: Rent may attract both GST and TDS, depending on the type of property and recipient.

For example:

If you pay ₹1,00,000 rent + 18% GST (₹18,000), TDS should be deducted only on ₹1,00,000, not on the GST amount. This distinction between TDS vs tds on GST is crucial to avoid errors during tax filing.

How to Calculate TDS and GST? (With Example)

Example: Payment to Consultant

Professional Fees: ₹1,00,000
GST @18%: ₹18,000
Total Invoice Value: ₹1,18,000
TDS @10% (under Sec 194J): ₹10,000

Payment to Consultant = ₹1,08,000 (after TDS deduction).

GST liability = ₹18,000, which the consultant pays to the government after availing ITC. Hence, both TDS and GST calculations operate independently.

Compliance and Filing Requirements for TDS and GST:

TDS Compliance:

Deposit deducted TDS by the 7th of the following month.
File quarterly returns (Form 24Q/26Q).
Issue TDS certificates (Form 16/16A) to payees.
Annual TDS reconciliation through Form 26AS.

GST Compliance:

Monthly/quarterly return filing through GSTR-1 and GSTR-3B.
Annual return via GSTR-9.
Maintain records of invoices, payments, and ITC claims.
Timely payment to avoid interest and penalties.

Many businesses now prefer using TDS and GST return software for smoother compliance and reconciliation.

Penalties and Consequences of Non-Compliance:

TDS Non-Compliance:

Late payment attracts 1.5% interest per month.
Late filing penalty: ₹200 per day (u/s 234E).
Disallowance of expense in income tax computation.

GST Non-Compliance:

Late filing penalty: ₹50 per day.
Interest on late payment: 18% per annum.
Cancellation of GST registration for prolonged default.

These highlight the importance of proper TDS and GST filing and timely compliance.

Impact of TDS and GST on Businesses:

Both TDS and GST directly impact business cash flows, accounting, and compliance processes.

TDS affects receivables since part of the income is withheld at source.
GST affects pricing and invoice management since it’s collected from customers.

For startups and MSMEs, understanding TDS vs GST helps in better financial planning and avoiding working capital blockages.

Common Misconceptions About TDS and GST:

TDS and GST are the same – False; TDS is a direct tax, while GST is indirect.
TDS applies to the GST amount – Incorrect; TDS is deducted excluding GST.
TDS is applicable only on salary – No; it applies to multiple payments like rent, contractor, and professional fees.
GST replaces TDS – No; both coexist under different laws.

Such clarity on TDS vs GST meaning helps businesses remain compliant.

TDS on GST Component – Government Clarification:

The government has clearly stated that TDS should not be deducted on the GST component of an invoice. This means while calculating TDS deduction, GST must be excluded from the taxable base amount.

For example, if an invoice is ₹1,00,000 + GST (₹18,000), TDS should be calculated only on ₹1,00,000. This clarification simplifies income tax TDS vs GST TDS issues and prevents double taxation.

Recent Updates and Amendments (2025 Edition):

As of 2025, key updates include:

GST TDS threshold revised for government departments and PSUs.
Automated reconciliation tools integrated with GSTN and TRACES portal.
Unified due date dashboard for TDS and GST due dates to streamline compliance.
AI-based error detection in TDS and GST return filing for accuracy.

Keeping track of these updates is crucial for businesses to maintain compliance.

Practical Tips for Smooth TDS & GST Compliance:

Use cloud-based accounting software for integrated TDS and GST return management.
Reconcile monthly invoices to avoid mismatches in ITC or TDS credit.
Stay updated on due dates for both TDS and GST filings.
Avoid common errors like deducting TDS on GST or missing return deadlines.
Consult professionals like Startup Portal Business Services for expert guidance in TDS and GST compliance.

TDS vs GST: How Startup Portal Helps New Businesses Stay Compliant

At Startup Portal Business Services, we understand how confusing managing TDS and GST compliance can be, especially for startups and growing businesses. Our team of tax experts provides:

Assistance in TDS and GST registration in Pune, filing, and reconciliation.
Guidance on TDS vs TCS in GST applicability.
Automation support for TDS and GST return filing in Pune.
Advisory on TDS and GST on rent, professional fees, and property purchase.
Real-time updates on TDS and GST filing dates and rule changes.

By choosing Startup Portal, you ensure hassle-free TDS and GST deduction, timely filing, and 100% compliance under Indian tax laws.

Conclusion:

In conclusion, despite their apparent similarities, TDS and GST have different functions within India’s tax structure. While GST regulates transaction-based tax on goods and services, TDS concentrates on income-based tax deductions. Businesses may stay compliant, make better plans, and stay out of trouble by knowing the differences between TDS and GST.

Startup Portal Business Services provides comprehensive help with TDS and GST return filing, reconciliation, and compliance management for new businesses, professionals, and business owners looking for smooth compliance support. This ensures that your company stays both legally sound and financially effective.

Get expert assistance today!

Contact Startup Portal Business Services at 91 8975400253 / +91 7249645760 to simplify your TDS and GST compliance with trusted professionals.