Follow us on:
Quick Snapshot
TDS under GST operates under Section 51 of the CGST Act and applies to government departments, local authorities, PSUs, notified bodies and registered persons buying metal scrap. The deductor must deduct 1% CGST plus 1% SGST on intra-state supplies and 2% IGST on inter-state supplies, calculated on the taxable value of supply under a contract exceeding ₹2,50,000. The location rule is one of the most important aspects here. TDS does not apply when the supplier’s location and place of supply are in a different state than the deductor’s state of registration. Deductors must register under GST using their TAN, deposit TDS by the 10th of the following month, and file a monthly return in GSTR-7 without fail, even for months with no deductions. Once GSTR-7 is filed, the TDS amount automatically reflects in the supplier’s electronic cash ledger as usable credit.
What is TDS under GST?
Most of us know TDS from income tax. GST has its own version of it too. Under Section 51 of the CGST Act, 2017, certain specified persons must deduct a portion of the payment before paying their supplier. This deducted amount goes directly to the government. The supplier then gets credit for it in their electronic cash ledger.
This mechanism ensures tax reaches the government even before the supplier files their return.
Who Must Deduct TDS?
Section 51(1) of the CGST Act specifies the following persons as TDS deductors:
Covered directly under the section:
• Central or State Government department or establishment
• Local Authority
• Governmental Agencies
Additionally notified under Section 51(1)(d):
• Any authority, board or body set up by an Act of Parliament or State Legislature, or established by the Government, with 51% or more equity or control held by the Government
• Society established by Central Government, State Government or a Local Authority
• Public Sector Undertakings (PSUs)
• Any registered person receiving supplies of metal scrap from another registered person
Important: The 51% equity or control condition applies strictly. A body where government participation falls below 51% does not qualify as a TDS deductor under this section.
Who is NOT Required to Deduct TDS?
Not every government-related transaction attracts TDS. The following situations are exempt:
• Supplies made to authorities under the Ministry of Defence, except those specifically listed in Annexure-A
• Supplies made from one PSU to another PSU, even if they are distinct persons
• Supplies between persons covered under clauses (a), (b), (c) and (d) of Section 51(1), except where metal scrap is involved
So if a government department purchases from another government department, TDS does not apply.
When Does TDS Apply? (Threshold Limit)
TDS applies only when the total value of supply under a single contract exceeds ₹2,50,000, exclusive of GST and cess.
A few important points here:
• Individual invoices may be below ₹2,50,000. But if the total contract value crosses the limit, TDS applies on every payment under that contract.
• TDS applies even if the supplier is a Composition Taxpayer
When TDS does NOT need to be deducted?
| Case | TDS Required (Yes/No) |
|---|---|
| Total taxable supply value under contract is up to ₹2.5 Lakh | No |
| Contract value exceeds ₹2.5 Lakh but taxable supply portion is up to ₹2.5 Lakh | No |
| Exempted services received | No |
| Exempted goods received | No |
| Goods not leviable to GST (petrol, diesel, ATF, natural gas, alcohol) | No |
| Supply under Schedule III of CGST Act | No |
| Tax payable under RCM by the recipient | No |
| Payment to an unregistered supplier | No |
| Payment relates only to Cess component | No |
| Supplier and place of supply are in a different state than the deductor’s state of registration | No |
Rate of TDS
| Type of Supply | CGST | SGST | IGST |
|---|---|---|---|
| Intra-state supply | 1% | 1% | – |
| Inter-state supply | – | – | 2% |
TDS is deducted on the taxable value of supply, not on the total invoice amount. GST, cess and other charges under GST law are excluded from the base on which TDS is calculated.
Example: A government department gave a contract worth ₹1,00,000 to a supplier. The invoice raised is ₹1,12,000 (including 12% GST of ₹12,000). TDS will be deducted at 1% CGST + 1% SGST on ₹1,00,000, which works out to ₹1,000 + ₹1,000 = ₹2,000 total TDS. The supplier receives ₹1,10,000 after TDS.
Where Does TDS Apply? (Location Rule)
This is where most people get confused. Therefore, understanding the location rule is critical.
TDS does not apply when the supplier’s location and place of supply are in a state or union territory different from where the recipient (deductor) is registered.
The reason is straightforward. If the supply is intra-state but the deductor is in a different state, the TDS would be in the wrong state’s ledger. Transferring it to the correct supplier ledger becomes impossible.
The illustration table below makes this clear:
| Location of Supplier | Place of Supply | Registration of Recipient | TDS Applies? |
|---|---|---|---|
| Delhi | Delhi | Uttar Pradesh | No |
| Haryana | Haryana | Haryana | Yes |
| Rajasthan | Bihar | Bihar | Yes |
Registration for TDS Deductors
Every TDS deductor must register under GST. There is no turnover threshold here. Registration is mandatory regardless of whether the deductor is already registered under GST. One useful feature: a TDS deductor does not need a PAN to register. They can use their Tax Deduction and Collection Account Number (TAN) issued under the Income Tax Act, 1961.
Depositing TDS with the Government
The deductor must deposit the TDS amount with the government by the 10th of the month following the month in which the deduction was made. Delay in deposit attracts interest at 18% per annum.
Filing Returns:
| Return | Form | Due Date | Nil Return Required? |
|---|---|---|---|
| Monthly TDS return | GSTR-7 | On or before 10th of the next month | Yes, even if no deduction made |
| TDS Certificate | GSTR-7A | Auto-generated after GSTR-7 is filed | Not applicable |
Note that GSTR-7 must be filed every month without exception, even if no TDS was deducted during that month. This is different from GSTR-8 (TCS return for ECOs), where a nil return is not required.
TDS Certificate
Once the deductor files GSTR-7, the system automatically generates a TDS certificate in Form GSTR-7A. This certificate goes to the supplier (deductee) as proof of the deduction made.
How Does the Supplier Claim Credit?
Once the deductor files GSTR-7, the TDS amount automatically reflects in the electronic cash ledger of the supplier. The supplier can then use this balance to pay their GST liability. No separate claim is needed.
Refund of Excess or Erroneous Deduction
Both the deductor and the deductee can apply for a refund if TDS was deducted in excess or by mistake. However, there is one condition. If the deducted amount has already been credited to the supplier’s electronic cash ledger, it cannot be refunded. In that case, the supplier must use it against their tax liability.
Thanks for reading !
