TDS under GST is a separate mechanism from income-tax TDS, and it catches many suppliers off guard the first time a government buyer deducts tax from a payment that already includes GST. TDS under GST applies under Section 51 of the CGST Act, and only to a specific list of deductors - it is not something every business customer can do. This guide explains who deducts it, when it kicks in, how the rate works, and how a supplier recovers the credit.
What TDS Under GST Actually Is
Certain notified categories of buyers are required to deduct a percentage of the payment made to a supplier of taxable goods or services, and deposit that amount with the government instead of paying it directly to the supplier. The supplier still raises a normal GST invoice for the full value; the deductor simply withholds a portion of the payment as TDS and reports it. This is distinct from Tax Collected at Source (TCS), which e-commerce operators collect from sellers on the value of supplies made through their platform - the two are commonly confused because both reduce cash received on paper.
Who Is Required to Deduct
Section 51 applies only to specified persons, which broadly include:
- A department or establishment of the Central or State Government
- Local authorities
- Governmental agencies
- Such persons or category of persons as notified by the Government, including certain public sector undertakings and entities with substantial government ownership or control
A private company selling to another private company does not deduct TDS under GST. This is largely a government-procurement and PSU-vendor provision, so it matters most to suppliers who bid for tenders or supply goods and services to public bodies.
When TDS Applies
TDS is triggered when the total value of a supply under a contract exceeds ₹2.5 lakh, excluding the tax amount charged on the invoice. This threshold is assessed contract-by-contract, not by adding up everything a supplier bills the same deductor across the year - several smaller purchase orders that are each independent contracts below the threshold would not individually attract TDS, even if the cumulative annual value is high. There are also specific carve-outs, such as no deduction where the location of the supplier and the place of supply are both in a State or Union Territory different from the State or Union Territory of registration of the deductor. Because these conditions are fact-specific, verify how they apply to your contract on the official GST portal or with a tax professional before assuming TDS should or should not be deducted.
TDS Rate
| Type of supply | TDS rate | Deducted on |
|---|---|---|
| Intra-state supply | 1% CGST + 1% SGST (2% total) | Taxable value of the supply, excluding GST |
| Inter-state supply | 2% IGST | Taxable value of the supply, excluding GST |
The deduction is calculated on the taxable value shown on the invoice, not on the invoice total including GST. Rates and thresholds under GST law are subject to change by notification, so confirm the current figures on www.gst.gov.in before relying on them for a large contract.
Compliance Steps for the Deductor
- Deduct TDS at the time of payment or credit to the supplier's account, whichever is earlier
- Deposit the deducted amount with the government within the prescribed time after the month of deduction
- File Form GSTR-7, which reports details of the deductee, the contract value, and the tax deducted, by the 10th of the following month
- Issue a TDS certificate in Form GSTR-7A to the supplier, generated automatically once GSTR-7 is filed
Failure to deduct, deposit, or file GSTR-7 on time attracts interest and late fees on the deductor, so government buyers and PSUs generally treat this as a strict internal process, not a discretionary one.
How the Supplier Recovers the TDS Credit
The amount deducted does not vanish - it lands in the supplier's electronic cash ledger once the deductor files GSTR-7 and the supplier accepts the entry under the "TDS and TCS credit received" section on the GST portal. After acceptance, the credit is available in the cash ledger and can be used to pay output tax liability or claimed as a refund if it exceeds what is owed. Suppliers who regularly deal with government buyers should reconcile this credit monthly rather than waiting until year-end, since an unaccepted or mismatched entry means the cash sits unusable in the deductor's filing rather than in the supplier's own ledger.
A Practical Example
A supplier raises an intra-state invoice of ₹5,00,000 taxable value plus 18% GST to a government department under a single contract. Because the contract value exceeds ₹2.5 lakh, the department deducts 2% TDS (1% CGST + 1% SGST) on the ₹5,00,000 taxable value, i.e. ₹10,000, and pays the supplier the balance. The department deposits ₹10,000 and files GSTR-7; the supplier accepts the credit entry, and ₹10,000 becomes available in their electronic cash ledger to offset against GST payable when filing GSTR-3B.
Keeping TDS Credit From Falling Through the Cracks
Because TDS credit sits in a separate acceptance workflow rather than arriving automatically like ITC from GSTR-2B, it is easy for a busy accounts team to miss it, especially across multiple government contracts and GSTINs. If you already reconcile GSTR-3B against books using our GSTR-3B filing guide, add a monthly check of the TDS/TCS credit received tab to that routine so the credit is claimed in the same period it is deposited, rather than discovered months later during an audit.
TDS vs TCS Under GST at a Glance
Suppliers who deal with both government buyers and e-commerce marketplaces sometimes conflate TDS and TCS because both show up as a smaller-than-expected payout. The two provisions are unrelated in mechanism, even though the end result - a credit that must be separately claimed on the portal - feels similar.
- TDS (Section 51) is deducted by the buyer at the time of payment, on contracts above ₹2.5 lakh, only by specified government-linked deductors
- TCS (Section 52) is collected by an e-commerce operator on the net value of taxable supplies made through its platform, regardless of individual order value
- Both credits appear under the same "TDS and TCS credit received" tab on the GST portal and both require the supplier to actively accept them before the amount reaches the electronic cash ledger
A seller who supplies goods to a government department both directly and through a marketplace could see both types of credit in the same tax period, and both need to be reconciled separately against the relevant contract or platform.
Frequently Asked Questions
Is TDS under GST the same as income-tax TDS?
No. They are separate laws with separate deductors, rates, and forms. A single transaction with a government buyer can attract both income-tax TDS (under the Income-tax Act) and TDS under GST (under Section 51 of the CGST Act) independently.
Does TDS under GST apply to private-sector B2B transactions?
Generally no. Section 51 applies to a specified list of deductors that is largely government departments, local authorities, government agencies, and certain notified PSUs or entities with significant government control - not ordinary private companies.
What is the threshold below which TDS is not deducted?
TDS is not required where the total value of supply under an individual contract is ₹2.5 lakh or less, excluding tax. Verify this figure on the GST portal as thresholds can be revised by notification.
How does a supplier claim TDS deducted under GST?
The supplier reviews and accepts the TDS entry under the "TDS and TCS credit received" tab on the GST portal after the deductor files GSTR-7. Once accepted, the amount is credited to the electronic cash ledger and can be used against output tax liability or refunded.
What return does the deductor file for TDS under GST?
The deductor files Form GSTR-7, generally due by the 10th of the month following the month of deduction, and issues a TDS certificate in Form GSTR-7A to the deductee.
Can TDS under GST reduce the invoice value the supplier bills?
No. The supplier still issues an invoice for the full taxable value and applicable GST. TDS only affects the payment received - the deductor withholds the TDS amount from the payment while the invoice and tax liability remain unchanged.
Tracking TDS deductions against your receipts
TDS under GST creates a gap between what you invoiced and what actually lands in the bank. The deductor pays you net, the deducted amount reaches your electronic cash ledger only once they file, and the two events rarely fall in the same week. A business that reconciles on payout value alone ends up understating turnover.
OneBooks GST helps on the evidence side of that reconciliation. Bank statements are parsed into dated, ledger-mapped transaction rows so a net receipt can be traced back to the invoice it settles, and sales data imported from marketplaces or invoice files feeds GSTR-1 preparation with validation on GSTIN, tax rate and place of supply. Keeping gross invoice value, deducted amounts and net receipts as three separate reviewable figures — rather than collapsing them into one payout number — is what makes a deduction straightforward to evidence later. OneBooks GST is built around that separation, holding imported sales, parsed bank rows and exported return data as distinct reviewable records.
How OneBooks GST fits into this
Where this becomes repetitive month after month, OneBooks GST imports sales data, prepares GSTR-1, parses bank statements, and exports to Tally XML, Miracle, Profit NX, Excel and CSV.
Because OneBooks GST keeps each GSTIN in its own organisation context, a business registered in several states can work through one registration at a time.
