TDS Under GST: Who Deducts, Rates and How It Works

TDS under GST is a mechanism under section 51 of the CGST Act that requires specified buyers, mainly government bodies and public sector entities, to deduct a small percentage of the payment made to suppliers and deposit it with the government. It is separate from TDS under income tax. Suppliers who work with government departments, PSUs and local authorities see it on almost every payment, and need to claim the deducted amount in their electronic cash ledger. This guide explains who deducts, the rate and threshold, the exceptions linked to place of supply, the deductor's return, the supplier's side and a worked example.

Who must deduct TDS under GST

Section 51 and the related notifications require these persons to deduct TDS:

• A department or establishment of the Central or State Government.
• Local authorities.
• Governmental agencies.
• Persons notified by the government, which include authorities, boards or bodies set up by Parliament or a state legislature or by a government with 51% or more equity or control; societies established by government under the Societies Registration Act; and public sector undertakings.

Deductors must register under GST as TDS deductors, even if they are not otherwise required to register. Separately, a 2024 notification extended GST TDS to registered persons buying metal scrap from registered suppliers. If your business buys metal scrap, check whether this applies to you.

Rate and threshold

Point	Rule
Rate	2% of the payment made: 1% CGST + 1% SGST/UTGST for intra-state supplies, or 2% IGST for inter-state supplies
Threshold	Applies when the total value of supply under a contract exceeds ₹2.5 lakh
Value for threshold and deduction	Excludes CGST, SGST, UTGST, IGST and cess shown on the invoice
When to deduct	At the time of payment (or credit) to the supplier

The threshold is tested on the contract value, not on individual invoices. A contract of ₹4 lakh split into four invoices of ₹1 lakh each still attracts TDS on every payment.

When TDS under GST does not apply

• Contract value is ₹2.5 lakh or less.
• The location of the supplier and the place of supply are both in a state or UT different from the state or UT of registration of the recipient. In that case, no TDS is deducted, because the tax belongs to another state.
• Supplies that are exempt or nil-rated, or on which the recipient pays under reverse charge.
• Supplies between specified government entities, where notified.

Applying the place of supply exception

Supplier location	Place of supply	Recipient registration	TDS?
Uttar Pradesh	Uttar Pradesh	Uttar Pradesh	Yes: 1% CGST + 1% SGST
Delhi	Uttar Pradesh	Uttar Pradesh	Yes: 2% IGST
Delhi	Delhi	Uttar Pradesh	No: supplier location and place of supply are both outside the recipient's state

Place of supply is decided under the usual rules; see our explainer on place of supply under GST.

Worked example: a government contract

A Lucknow IT firm supplies hardware maintenance services to a Uttar Pradesh state department under a contract worth ₹10,00,000 (excluding GST). It issues an invoice:

Line	Amount
Taxable value	₹10,00,000
CGST at 9%	₹90,000
SGST at 9%	₹90,000
Invoice total	₹11,80,000
GST TDS at 2% of ₹10,00,000 (1% CGST + 1% SGST)	₹20,000 (₹10,000 + ₹10,000)
Payment received after GST TDS	₹11,60,000

The department may also deduct income-tax TDS on the same payment, which is a separate deduction under income-tax law and is calculated on the value excluding GST. For example, if it applies a 2% contractor rate, that is another ₹20,000, and the net receipt would be ₹11,40,000. The two deductions are claimed in different places: GST TDS in the GST cash ledger, income-tax TDS in the income-tax return.

The deductor's obligations

1. Register as a TDS deductor on the GST portal using the TAN.
2. Deduct at the time of payment and check the threshold and exceptions.
3. Deposit and file GSTR-7 by the 10th of the following month, listing each supplier's GSTIN, invoice and payment details and TDS deducted.
4. TDS certificate (GSTR-7A) is generated automatically for the supplier on filing GSTR-7.
5. Correct errors through amendments in a later GSTR-7, since a filed return cannot be revised.

Late filing of GSTR-7 attracts late fee, and delayed deposit attracts interest. Failure to deduct or deposit can lead to the amount being recovered from the deductor with interest and penalty.

The supplier's side: claiming TDS credit

1. After the deductor files GSTR-7, go to Services, Returns, TDS and TCS Credit Received.
2. Review each entry and accept, reject (if wrong) or keep it pending.
3. File the TDS and TCS credit received form. On filing, accepted amounts are credited to your electronic cash ledger.
4. Use the cash ledger balance to pay output tax, interest or late fee in GSTR-3B, or claim a refund of excess balance.
5. Reconcile TDS credits with the payments received in your books.

Accepting the credit is now linked to return filing workflows on the portal, so act on these entries before filing GSTR-3B. In the example above, the IT firm's cash ledger is credited with ₹10,000 CGST and ₹10,000 SGST, which it can use against its next GSTR-3B liability.

Accounting entries for the supplier

• On invoice: debit department ₹11,80,000; credit sales ₹10,00,000; credit Output CGST ₹90,000; credit Output SGST ₹90,000.
• On receipt: debit bank ₹11,60,000; debit GST TDS receivable ₹20,000; credit department ₹11,80,000.
• On acceptance in the portal: the GST TDS receivable is matched with the cash ledger balance and used against output tax.

Keeping a separate GST TDS receivable ledger avoids confusion with income-tax TDS receivable.

More worked scenarios

Scenario 1: contract below the threshold

A municipal corporation in Pune awards a Pune printing firm a contract for ₹2,20,000 plus GST. Because the contract value does not exceed ₹2.5 lakh, no GST TDS is deducted, even though the buyer is a notified deductor. If the contract is later extended so that the total value crosses ₹2.5 lakh, TDS applies to payments from that point, and the deductor should review the contract as a whole.

Scenario 2: inter-state supply

A Kolkata engineering firm supplies equipment worth ₹15,00,000 to a central PSU's plant in Odisha, where the PSU is registered as a deductor. The supply is inter-state, place of supply is Odisha, and the recipient is registered in Odisha. TDS applies as IGST at 2%: ₹30,000. The firm receives ₹15,00,000 plus IGST of ₹2,70,000 (at 18%), less ₹30,000, that is ₹17,40,000.

Scenario 3: advance payments

Where a deductor pays an advance before the supply, TDS is deducted on the payment as it is made, provided the contract value exceeds the threshold. The supplier should track TDS on advances separately and match it with later invoices.

Refund of excess TDS credit

Suppliers whose main customers are government entities sometimes accumulate more TDS in the cash ledger than they need to pay output tax, especially where they also have large ITC. The excess balance in the cash ledger can be claimed as a refund through the refund application on the portal, under the category for excess balance in the electronic cash ledger. Keep the cash ledger in mind when planning tax payments: using the TDS balance first reduces the need for fresh challans.

Common mistakes

• Deducting TDS on the GST-inclusive amount instead of the taxable value.
• Deducting on contracts of ₹2.5 lakh or less.
• Deducting when the place of supply exception applies.
• Suppliers forgetting to accept credits, leaving money idle outside the cash ledger.
• Mixing GST TDS and income-tax TDS in one receivable account.
• Deductors not filing GSTR-7 on time, which delays suppliers' credit and attracts late fee.

Checklist for suppliers to government entities

1. Confirm whether the buyer is a notified TDS deductor and has a GSTIN as deductor.
2. Note the contract value and whether it exceeds ₹2.5 lakh.
3. Check place of supply and the exception.
4. On each receipt, record GST TDS and income-tax TDS separately.
5. Monthly, accept TDS credits on the portal before filing GSTR-3B.
6. Follow up with the deductor if credits are missing.

How Fininvo helps

Fininvo ERP records receipts against invoices with partial payment tracking, so short receipts because of GST TDS and income-tax TDS can be posted to separate receivable ledgers, and its TDS/TCS module handles income-tax deductions. See tax compliance, accounting and pricing.

General information, not tax advice. Notified deductors, rates and exceptions change by notification; consult your CA.

Frequently Asked Questions

Is GST TDS the same as income-tax TDS?

No. GST TDS is deducted under section 51 of the CGST Act and credited to your GST cash ledger. Income-tax TDS is deducted under income-tax law and claimed in your income-tax return. Both may apply to the same payment.

Is GST TDS deducted on the total invoice value?

No. It is deducted on the taxable value, excluding GST and cess shown on the invoice.

Can private companies deduct GST TDS?

Generally no, unless they fall within notified categories, such as PSUs, or the metal scrap provision applies to their purchases.

What is the due date for GSTR-7?

The 10th of the month following the month of deduction.

Where does the TDS credit go for the supplier?

To the electronic cash ledger, after the supplier accepts it in the TDS and TCS credit received form. It can be used to pay tax or claimed as a refund.