GST TDS Decoded: Who Cuts It, Who Gets It, and Who Files It

“Wait - I'm the one paying, and I still have to deduct tax?”

Sounds a bit unfair, right? But welcome to the world of Tax Deducted at Source (TDS) under GST - where the government trusts you to collect its share before your vendor even sees the full payment. It's like being made the middleman in someone else's tax affair. If you’re a government body, PSU, or other notified entity, this isn’t optional - it’s your statutory duty.

In this article, let’s break down the what, who, how, and when of TDS under GST, and with a touch of clarity.

Statutory Basis: Section 51 of the CGST Act

Section 51(1) mandates specified government entities and notified persons (referred to as “deductors”) to deduct tax from payments made to suppliers of taxable goods or services or both, where the contract value exceeds Rs. 2.5 lakhs.

Rate of TDS under GST:

• 1% CGST + 1% SGST (i.e., total 2%) if intra-State supply

• 2% IGST if inter-State supply

☞ TDS is deducted on the taxable value of the supply (i.e., excluding GST).

✕No TDS is required when:

• The location of the supplier and place of supply are in different States/UTs than that of the recipient.

(This essentially means that the recipient is not in the same State/UT as either the supplier or the place of supply)

Who are the deductors?

Section 51(1) classifies deductors into two categories:

☒ Exclusions:

• Ministry of Defence authorities, except those listed in Annexure-A

• Inter-PSU supplies

• Supplies between persons covered under Section 51(1)(a)–(c) and those notified under Notification No. 50/2018 are generally excluded - except where the recipient is a metal scrap buyer (clause d of the notification).

Clarification on Government Participation Requirement

[Circular No. 76/50/2018-GST (Issue 4)]

A common doubt arose about the scope of clause (a) in Notification No. 50/2018, particularly regarding whether the “51% or more participation by way of equity or control” applies to both parts (i) and (ii) of clause (a).

The CBIC clarified as follows:

“The “51% or more Government participation” condition applies to both:

(i) authorities set up by an Act of Parliament or State Legislature, and

(ii) authorities established by any Government.”

So, only those authorities, boards, or bodies which are either set up by law or established by Government and have ≥51% Government ownership/control are required to deduct TDS under Section 51.

Compulsory Registration Under GST [Section 24(vi) and Rule 12]

Once a person falls under the scope of Section 51 (i.e., is required to deduct TDS), GST registration becomes mandatory, irrespective of turnover.

❖ Statutory Requirement:

• Under Section 24(vi), persons required to deduct TDS must register under GST.

❖ Registration Procedure (Rule 12)

• Application must be filed in FORM GST REG-07.

• If the deductor does not have a physical presence in the State/UT where the deduction is to be made:

• Mention the place of deduction in Part A, and

• Mention the principal/head office address in Part B of the application.

• Upon verification, the registration certificate is issued in FORM GST REG-06 within 3 working days.

• If the registration is later required to be cancelled (e.g., deduction obligation ceases), cancellation is done through FORM GST REG-08, as per Rule 22.

TDS Return Filing, Credit, and Related Provisions [Sections 51 & Rules 66, 85]

❖ Filing and Payment Obligations

[Section 51(2)/ (3), Rule 66]

• Deducted tax must be paid to the Government within 10 days of the next month.

• TDS deductors must file FORM GSTR-7 by the 10th of the following month.

• Once filed:

o The deducted amount is credited to the deductee’s electronic cash ledger.

o A TDS certificate (FORM GSTR-7A) is automatically generated and made available to the deductee.

❖ Adjustment and Payment Mechanism:

[Rule 85(4), Rule 87]

• TDS deducted under Section 51 is paid using the electronic cash ledger - meaning the liability must be discharged in cash (not through ITC).

• Once paid, the corresponding liability gets reduced in the electronic liability register (FORM GST PMT-01).

❖ Credit to Deductee

[Section 51(5), Rule 66]

• Once the deductor files GSTR-7 and pays the amount, the deductee receives credit in their electronic cash ledger.

• This amount can be used to pay any output tax liability.

Important:

The deductee cannot claim TDS credit unless the deductor files GSTR-7 return. This ensures transparency and encourages timely filing of returns by deductors, benefiting both parties.

❖ Interest, Penalties, and Refunds

[Sections 51(6), (7), (8)]

• Late payment of TDS attracts interest under Section 50(1).

• Non-deduction, short deduction, or non-payment may invite proceedings under Section 73, 74, or 74A.

• Such liabilities are tracked in the electronic liability register (FORM GST PMT-01).

Refunds:

• Erroneous or excess TDS may be refunded u/s 54.

• However, no refund is granted to the deductor if the amount has already been credited to the deductee’s cash ledger.

Conclusion: TDS Under GST in a Nutshell

TDS under GST isn’t just a compliance formality - it’s a legal duty for notified entities. Timely deduction, payment, and filing of GSTR-7 ensures smooth credit flow to suppliers and avoids penalties. Simply put: Deduct correctly, file on time, and let your vendor get their due credit.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.