TDS (Tax Deducted at Source) under GST requires certain entities to deduct 2% tax when making contract payments. Understanding who deducts, when, and how to claim credit is essential for compliance.
What is TDS Under GST?
Section 51 of CGST Act mandates specified categories of registered persons to deduct TDS at 2% (1% CGST + 1% SGST or 2% IGST) on payments to suppliers for supply of goods or services.
📊 Example
Contract value: ₹10,00,000 (taxable value) + ₹1,80,000 GST @ 18%
TDS deduction: ₹10,00,000 × 2% = ₹20,000
Payment to supplier: ₹11,80,000 - ₹20,000 = ₹11,60,000
TDS to government: ₹20,000 (deductor pays)
Supplier claims: ₹20,000 credit in GSTR-2A/2B
Who Must Deduct TDS?
Only these entities are required to deduct TDS:
- Central Government departments
- State Government departments
- Local authorities
- Governmental agencies
- Public sector undertakings (PSUs)
- Authorities/Boards set up by Parliament/State Legislature
- Societies registered under Societies Registration Act, controlled by Central/State Government
⚠️ Important
Private companies, LLPs, partnership firms, and proprietors are NOT required to deduct TDS under GST (unlike income tax TDS which applies more broadly).
When is TDS Deducted?
Threshold Limit
TDS applies only when:
- Total contract value exceeds ₹2.5 lakh
- Calculated on individual contract basis
- Excluding GST (on taxable value only)
Timing of Deduction
TDS must be deducted at the time of payment to supplier.
| Contract Value | TDS Applicable? | Amount to Deduct |
|---|---|---|
| ₹2,00,000 | No | Nil (below threshold) |
| ₹3,00,000 | Yes | ₹6,000 (2% of ₹3,00,000) |
| ₹10,00,000 | Yes | ₹20,000 (2% of ₹10,00,000) |
How TDS Works
Deductor's Process (Government/PSU)
- Receive invoice from supplier
- Calculate TDS: Taxable value × 2%
- Deduct TDS from payment
- Pay supplier: Invoice amount - TDS
- Deposit TDS to government by 10th of next month
- File GSTR-7 monthly return
- Issue TDS certificate to supplier
Supplier's Process (Receiving TDS Credit)
- Receive payment with TDS deducted
- Check GSTR-2A/2B for TDS credit (auto-populated)
- Claim credit in GSTR-3B Table 4(A)(2)
- Use credit to pay output GST liability
Calculate TDS on Your Contracts
Use our TDS Calculator to compute TDS deduction on contract payments.
Calculate TDS →GSTR-7: TDS Return
Deductors must file GSTR-7 monthly:
- Due date: 10th of next month
- Purpose: Report all TDS deductions and deposits
- Contents: Supplier details, invoice details, TDS deducted, TDS deposited
TDS Certificate
After filing GSTR-7, deductor must issue TDS certificate to supplier showing:
- Deductee's GSTIN
- Certificate number
- Deduction details
- Amount deducted
Claiming TDS Credit (Supplier)
Where TDS Appears
- GSTR-2A: Auto-populated from deductor's GSTR-7
- GSTR-2B: Available from 14th of next month
How to Claim
- Download GSTR-2A/2B
- Verify TDS credit shown
- Claim in GSTR-3B Table 4(A)(2) - "ITC as per GSTR-2A (including TDS/TCS credit)"
- Credit automatically available in electronic credit ledger
💡 Pro Tip
TDS credit appears automatically in GSTR-2A/2B. No manual entry needed. Just claim it in GSTR-3B!
Common Scenarios
Scenario 1: Multiple Payments on Same Contract
Contract: ₹10,00,000. Paid in 3 installments of ₹3,33,333 each.
TDS: Deduct on each payment: ₹3,33,333 × 2% = ₹6,666 per installment
Scenario 2: Contract Below Threshold
Contract: ₹2,00,000 (below ₹2.5L threshold)
TDS: No TDS deduction required
Scenario 3: Inter-state Supply
Government in Maharashtra contracts with supplier in Karnataka
TDS: 2% IGST (not CGST+SGST)
Penalties for Non-Compliance
| Violation | Penalty |
|---|---|
| Not deducting TDS | 18% interest on TDS amount + penalty |
| Not depositing TDS | 18% interest from due date |
| Late filing of GSTR-7 | ₹100/day (₹50 CGST + ₹50 SGST), max ₹5,000 |
| Not issuing TDS certificate | ₹100 per day per certificate |
Key Differences: GST TDS vs Income Tax TDS
| Parameter | GST TDS (Section 51) | Income Tax TDS |
|---|---|---|
| Who deducts | Only govt/PSU/local bodies | All specified persons |
| Rate | 2% (fixed) | Varies (1%, 2%, 5%, 10%) |
| Threshold | ₹2.5 lakh per contract | ₹30,000 (Section 194C) |
| Calculated on | Taxable value (excluding GST) | Payment value |
Frequently Asked Questions
Is TDS applicable on advance payments?
No. TDS is deducted only at the time of actual payment against invoice, not on advances.
Can supplier refuse payment if TDS not deducted?
No. If deductor doesn't deduct TDS (when required), they face penalty - not the supplier. Supplier gets full payment.
What if TDS is wrongly deducted on a contract below ₹2.5L?
Deductor can revise GSTR-7. Supplier can claim the credit anyway (but it's an error).
Can TDS credit be used for all tax heads?
Yes. TDS credit can be used to pay IGST, CGST, or SGST liability.