Understanding Tax Deduction at Source Under GST Section 51
Tax Deduction at Source (TDS) isn’t limited to income tax – it’s also a crucial component of the Goods and Services Tax (GST) framework. Section 51 of the CGST Act mandates specific organizations including government departments, local authorities, and designated entities to deduct TDS when paying suppliers for taxable goods or services. This mechanism strengthens compliance and enhances transparency within the GST system.
The critical questions every business must answer are: Which entities must deduct GST TDS? At what point should deduction occur? What percentage should be deducted? And crucially, what are the payment timelines and procedures?
Practical Example: GST TDS in Action
Contract Details:
- Total Contract Value (GST excluded): ₹2,60,000
- Scenario: A supplier contracts with a government department for ₹2.6 lakhs
Invoice Schedule:
- First Invoice: ₹2,40,000 (April billing)
- Second Invoice: ₹20,000 (December billing)
Let’s analyze the TDS implications.
TDS Applicability Assessment
The GST TDS threshold stands at ₹2,50,000 per contract (GST excluded). Since our contract value totals ₹2,60,000, TDS provisions apply – despite individual invoices falling below the ₹2.5 lakh threshold.
Critical Point: GST TDS operates on a per-contract basis, not per-invoice or per-vendor basis.
TDS Computation Details
First Invoice (April)
- Base Amount: ₹2,40,000
- TDS Percentage: 2% (comprising 1% CGST + 1% SGST or 2% IGST based on transaction type)
- TDS Deduction: ₹4,800
- Payment Deadline: May 10th
Second Invoice (December)
- Base Amount: ₹20,000
- TDS Percentage: 2%
- TDS Deduction: ₹400
- Payment Deadline: January 10th
Timing of TDS Deduction
TDS deduction must occur at the earlier of two events:
- Payment made to the supplier
- Invoice booking/recording
Adherence to this timing is essential for compliance, as incorrect timing can result in interest charges and penalties.
Essential GST TDS Compliance Guidelines
- Application Criteria
- TDS applies only when contract value (GST excluded) surpasses ₹2.5 lakh
- Assessment is per contract, not per invoice or vendor basis
- TDS Rates
- Standard rate: 2% of taxable value (GST excluded)
- Intra-state transactions: 1% CGST + 1% SGST
- Inter-state transactions: 2% IGST
- Deposit Requirements
- Deducted TDS must be remitted by the 10th of the subsequent month
- Late Payment Consequences
- Interest penalty: 18% per annum on delayed deposits
- Documentation and Reporting
- Monthly filing of Form GSTR-7 required
- TDS certificates to be provided to suppliers via Form GSTR-7A
Consequences of Non-Compliance
Missing TDS deadlines or failing to issue certificates timely results in:
- Interest charges at 18% per annum from due date until actual payment
- Suppliers may not receive credit for deducted amounts until proper filing and certificate issuance
- Potential penalties and legal action under GST regulations
GST TDS Compliance Quick Reference
| Compliance Element | Requirement |
| Threshold Limit | Contract value exceeding ₹2.5 lakh (GST excluded) |
| Deduction Rate | 2% of taxable amount |
| Deduction Timing | Payment or invoice booking (whichever occurs first) |
| Deposit Deadline | 10th of following month |
| Return Submission | Monthly GSTR-7 filing |
| Certificate Issuance | GSTR-7A to supplier |
| Late Payment Interest | 18% per annum |
Conclusion
GST TDS represents a specific compliance obligation for government entities and designated organizations. While the technical aspects may appear complex, proper adherence to these regulations ensures vendors receive appropriate credits and prevents penalties for all parties involved.
For businesses engaged in contracts exceeding ₹2.5 lakh with such entities, careful contract value assessment, timely deduction processes, and prompt return submission are essential for maintaining compliance.
