GST Tax Deduction at Source (TDS) is governed by Section 51 of the CGST Act, 2017. This provision requires certain specified persons, mainly government departments and public sector entities, to deduct tax while making payments to suppliers of taxable goods or services.
GST TDS was introduced to improve compliance, ensure proper tracking of government expenditure, and prevent tax leakage in government contracts. This guide explains the law, procedure, latest updates up to December 2025, and practical compliance aspects in a single place.
What is GST TDS under Section 51
GST TDS is a mechanism where notified deductors deduct a prescribed percentage of tax from payments made to suppliers and deposit it with the government. It is different from Income Tax TDS and applies only to taxable supplies under GST.
Who is required to deduct GST TDS
The following persons are required to deduct GST TDS if notified by the government:
- Departments or establishments of Central Government or State Government
- Local authorities
- Government agencies
- Authorities or bodies set up by Parliament or State Legislature
- Entities established by government with 51% or more equity or control
- Societies established by government
- Public Sector Undertakings (PSUs)
When GST TDS is applicable
GST TDS is applicable when the total value of taxable supply under a single contract exceeds Rs. 2.5 lakh. This threshold is calculated excluding GST and cess.
The threshold is checked contract-wise and not invoice-wise. GST TDS applies even if the payment is made in instalments or through multiple invoices. Advance payments are also subject to GST TDS if paid after the effective date.
GST TDS is deducted at the time of payment or at the time of credit to the supplier’s account, whichever is earlier.
Rate of GST TDS
For intra-state supplies, GST TDS is deducted at 1% CGST and 1% SGST.
For inter-state supplies, GST TDS is deducted at 2% IGST.
GST component is not included while calculating the TDS amount. TDS is calculated only on the taxable value.
When GST TDS is not applicable
GST TDS is not required in the following cases:
- When the contract value of taxable supply does not exceed Rs. 2.5 lakh
- When the supply is fully exempt under GST
- When the supply is a non-GST supply such as petrol, diesel, or alcohol for human consumption
- When the supply is covered under Reverse Charge Mechanism (RCM)
- When supplies are received from unregistered suppliers
- In certain inter-state cases where the deductor is not registered in the supplier’s state
- For payments or advances made before 1 October 2018
Registration for GST TDS deductors
Registration as a GST TDS deductor is mandatory under Section 24(vi) of the CGST Act. Registration is based on TAN and not PAN. The application is filed in Form GST REG-07 on the GST portal.
A separate GSTIN is issued for TDS purposes. Normal GST registration as a supplier is not required for deducting GST TDS.
Time of deduction and deposit
GST TDS must be deducted at the time of payment or credit, whichever is earlier. The deducted amount must be deposited with the government within 10 days from the end of the month in which deduction is made.
Return filing – Form GSTR-7
GST TDS deductors are required to file a monthly return in Form GSTR-7. The due date for filing GSTR-7 is the 10th of the following month.
Important update effective from September 2025: From the September 2025 tax period onwards, invoice-wise reporting in GSTR-7 is mandatory. Deductors must report invoice number, invoice date, taxable value, GST amount, and TDS deducted. Summary-level reporting is no longer permitted.
TDS certificate – Form GSTR-7A
After filing GSTR-7, Form GSTR-7A is generated automatically. This certificate must be made available to the deductee within 5 days. GSTR-7A enables the deductee to claim credit of the deducted TDS amount.
TDS credit to deductee
Once the deductor files GSTR-7, the TDS amount appears in the deductee’s GSTR-2A. After acceptance, the amount is credited to the deductee’s electronic cash ledger. This amount can be used for payment of GST liability or claimed as refund, subject to conditions.
Interest, late fee and penalty
Interest at the rate of 18% per annum is payable for delayed payment of GST TDS.
Late fee for delayed filing of GSTR-7 is Rs. 100 per day under CGST and Rs. 100 per day under SGST, subject to a maximum of Rs. 10,000.
Penalty may be imposed for non-deduction or short deduction of GST TDS and can extend up to the amount of tax not deducted, along with applicable interest.
Refund of excess GST TDS
Refund of excess GST TDS can be claimed under Section 54 of the CGST Act when excess deduction is made or when TDS is deducted though the threshold is not crossed.
Refund can be claimed by the deductor if the amount is not credited to the deductee. If the amount is credited to the deductee’s cash ledger, the refund can be claimed by the deductee.
Important practical points
- GST TDS applies only on taxable supplies and not on exempt supplies.
- GST TDS is calculated only on taxable value and not on GST amount.
- Advance payments made after the effective date are subject to GST TDS.
- Threshold of Rs. 2.5 lakh is checked contract-wise.
- GST TDS does not apply to supplies under Reverse Charge Mechanism.
- GST TDS does not apply to supplies from unregistered suppliers.
Common mistakes to avoid
- Failure to obtain GST TDS registration
- Deducting TDS including GST amount
- Ignoring invoice-wise reporting requirement after September 2025
- Late filing of GSTR-7
- Failure to issue or make available GSTR-7A to deductees
Conclusion
GST TDS under Section 51 is a strict compliance provision primarily affecting government departments, PSUs, and contractors. With invoice-wise reporting and data-driven scrutiny, even small mistakes can lead to interest, penalties, and disputes. Proper understanding of applicability, rates, timelines, and documentation is essential.
This guide consolidates the law, procedure, latest updates, and practical clarifications into a single, reliable reference to ensure full compliance with GST TDS provisions.
Disclaimer
This guide is for informational and educational purposes only and does not constitute legal or tax advice. Readers are advised to consult a qualified tax professional before taking any action based on this guide.