GST TDS Applicable: Rate, Rules & TDS on GST (2026)

Rakesh supplies building material to a state government office. His invoice is ₹500,000 plus GST. When the payment arrives, it is less than he expected. His accountant says, “That is TDS on GST.” Rakesh then hears from a friend that “TDS is not deducted on the GST part at all.” Both statements can be correct because they refer to two different TDS rules, which people often confuse.

This blog explains the difference. You will learn what GST TDS is, who must deduct it, when GST TDS is applicable, the rate, the return requirements, and what the Income Tax rule says about TDS on the GST amount in an invoice.

What Does “TDS on GST” Mean?

Meaning 1: GST TDS (Section 51 of the CGST Act)

This is a GST rule. Certain government bodies deduct a portion of the payment they make to a supplier and deposit it with the GST department. The supplier receives credit for it later.

Meaning 2: Income Tax TDS on the GST part of an invoice

This is an Income Tax question. When a business deducts TDS from a payment (for example, a professional fee or contractor payment), should it calculate TDS on the full invoice or on the amount without GST? This is a different rule under a different law, and it is covered later in this blog.

GST TDS, Income Tax TDS and GST TCS at a glance

What Is GST TDS?

GST TDS is covered by Section 51 of the CGST Act, with matching provisions in the IGST Act and the UTGST Act. The provision came into force on 1 October 2018. TDS means Tax Deducted at Source. The person making the payment deducts a small part of it and deposits it with the government in the supplier’s name. The supplier can then use that amount to pay their own GST.

Who is the deductor, and who is the deductee?

• Deductor: the person who deducts the tax while making the payment.
• Deductee: the supplier whose payment is reduced by the deduction.

Who Must Deduct GST TDS? (GST TDS Applicable)

This is where many people go wrong. GST TDS is applicable only to specified deductors. A private company or shop owner does not deduct GST TDS.

Specified deductors

• Government departments and offices: Any department or establishment of the Central Government or a State Government.
• Local authorities: Bodies such as municipal corporations and similar local bodies.
• Governmental agencies: Agencies set up and controlled by the government.
• Public sector undertakings and certain notified bodies: Authorities, boards and bodies set up by Parliament, a State Legislature or the government, where the government holds 51% or more of the equity or control. The government can also notify societies and other persons.

Who does not deduct

A private company paying a vendor does not deduct GST TDS. It may still deduct Income Tax TDS, which is a separate matter (see below).

When Is GST TDS Applicable? The Conditions

All of the following conditions should be met:

• The contract value is above ₹2.5 lakh: TDS applies when the total value of the supply under a contract is more than ₹2,50,000.
• It is the contract value, not one invoice: Look at the whole contract. A supplier may raise small invoices of ₹80,000 each, but if the contract is worth ₹4,00,000 in total, TDS applies.
• The value excludes GST: The ₹2.5 lakh limit and the TDS amount are both calculated on the value without CGST, SGST, IGST and cess shown in the invoice.
• The place of supply matters: TDS is not deducted if the supplier’s location and the place of supply are in a state or union territory that is different from the state where the deductor is registered. Check this carefully for inter-state contracts.

GST TDS Rate

CGST goes to the Central Government, SGST to the State Government, and IGST to the Central Government.

How to Calculate GST TDS: An Example

A State Government department awards a contract worth ₹10,00,000 to a supplier in the same state. GST is 18%.

Important: The 2% is calculated on ₹10,00,000, not on ₹11,80,000. If the total contract value were ₹2,40,000, no GST TDS would apply because it is below the limit.

Registration for TDS Deductors

• Form REG-07: A deductor must register for GST by applying in Form GST REG-07.
• No turnover limit: A deductor must register compulsorily, whatever its turnover. The usual small-business limit does not help here.

What about deductors in more than one state?

If a body operates in several states, registration is state-wise. A new multistate GST registration facility exists, but it is currently available only to Normal Taxpayers. Therefore, it does not cover deductor registrations. Check the portal before making plans based on this facility.

Payment of TDS and Filing GSTR-7

Due dates

• Deposit the TDS with the government by the 10th of the next month.
• File GSTR-7 by the 10th of the next month.

• Invoice-level details: The GSTR-7 format was changed in July 2024 so that the deductor reports invoice-level details.
• A NIL return: If no deduction was made in a month, filing a NIL GSTR-7 is the safe practice. A late fee does not apply to a NIL return.
• The TDS certificate: The deductor must give the supplier a GSTR-7A certificate. It shows the amount deducted. It has to be issued within five days of depositing the TDS with the government.

What the Supplier (Deductee) Should Do?

1. See the credit in the cash ledger.

Once the deductor files GSTR-7, the TDS amount appears in the supplier’s electronic cash ledger. The supplier can use it to pay GST on their own sales.

2. Check and reconcile the credit

Compare the GSTR-7A certificates and the cash ledger with your books every month. If a deductor deducted TDS but did not file GSTR-7, the credit will not appear. Our GST reconciliation guide explains how to match your records step by step.

3. Refund of extra TDS

If more TDS was deducted than required and the credit remains unused in the ledger, you can claim a refund of the excess under the applicable refund provisions.

4. The annual return

A person registered only as a TDS deductor is not required to file the annual return, as per Rule 80 of the CGST Rules. The supplier must file it. If you are a supplier, see our guide on GSTR-9 and GSTR-9C for FY 2025-26 before filing.

Late Fee, Interest, and Penalty

If you get a notice or an order

If the department raises a demand about TDS, you can reply and, if needed, appeal under Section 107. If an order shows a NIL demand because you have already paid the tax, you can still appeal. Read our explainer on the GST appeal against a NIL demand order and the detailed legal analysis of the right of appeal under Section 107.

TDS on the GST Amount Under Income Tax

Now, the second meaning. This one is about income tax TDS, not GST. The Central Board of Direct Taxes (CBDT) has said that if GST is shown separately in the agreement or invoice, TDS is deducted on the amount without GST. The reason is simple: the GST you charge is not your income, so tax should not be deducted on it.

An example

A professional charges ₹200,000 plus 18% GST. The invoice total is ₹2,36,000. TDS is assumed at 10% for this example.

The deciding factor is whether GST is shown separately. The rate here is only an example. The actual rate depends on the type of payment.

What changed from 1 April 2026

The Income-tax Act, 2025, replaced the 1961 Act from 1 April 2026, consolidating TDS rules. The CBDT GST circular is still in effect, so check for the latest guidance before relying on it.

Can Both TDS Apply on the Same Payment?

Yes, both can apply to the same payment, and they are separate. Take the earlier example: a State Government department pays a contractor ₹10,00,000 plus ₹1,80,000 GST.

The GST TDS goes to the supplier’s GST cash ledger. The Income Tax TDS goes to the supplier’s income tax record. One does not replace the other.

GST TCS: Not the Same as TDS

GST TCS (Section 52) is collected by e-commerce operators when a seller sells through their platform. The rate is 0.5% (0.25% CGST + 0.25% SGST, or 0.5% IGST), and the operator files GSTR-8 by the 10th of the next month. It is similar in concept but is a separate provision.

Things That May Change

Changes to GST rules are often discussed after Council meetings. Our summary of the 57th GST Council meeting recommendations covers changes to notices, penalties, refunds and returns. Those are only recommendations and not law yet. That summary does not list any change to the Section 51 rate or threshold.

Another recent update: GSTN has paused a set of proposed changes to the e-way bill system. Read e-Way Bill changes put on hold for details.

Common Mistakes to Avoid

• Thinking every business deducts GST TDS. Only specified deductors do.
• Calculating TDS on the invoice total. GST TDS is calculated on the value without GST.
• Looking at one invoice, not the whole contract, when checking the ₹2.5 lakh limit.
• Missing the 10th of the month for the deposit and for GSTR-7.
• Not issuing GSTR-7A, so the supplier cannot match the credit.
• Mixing up GST TDS and Income Tax TDS. They are two separate deductions.
• Not reconciling TDS credit with the cash ledger every month.

Conclusion

GST TDS applies to government bodies and notified persons at 2% on contracts over ₹2.5 lakh, calculated without GST. TDS on the GST amount depends on whether GST is shown separately in the invoice. Suppliers should check their cash ledger monthly, while deductors must file GSTR-7 by the 10th and issue the certificate. Keep TDS rules separate in your accounts. For assistance with GST registration, return filing, or reconciliation, contact the Paytaxs team.