TDS under GST in 2026: Who Deducts 2%, GSTR-7 and How Suppliers Get the Credit

If you sell goods or services to a government office, a municipal body, a public sector company or — since October 2024 — sell metal scrap to another registered business, the payment you receive will be short by a small slice. That slice is TDS under GST: tax the buyer deducts under section 51 of the CGST Act and deposits in your name. This guide is for suppliers chasing that credit and for accountants in government bodies and scrap-buying firms who have to deduct it. It covers who deducts, the ₹2.5 lakh rule, GSTR-7, late fees, how the money reaches your cash ledger, and how it differs from TCS and income-tax TDS. Every rule was checked against the GST portal, CBIC notifications and state FAQs in October 2026.

Quick answer

Under section 51 of the CGST Act, government departments, local authorities, government agencies, notified PSUs and societies — and registered buyers of metal scrap — deduct 2% (1% CGST + 1% SGST, or 2% IGST) of the taxable value when a single contract exceeds ₹2.5 lakh. They file GSTR-7 by the 10th of the next month; the supplier accepts the entry on the portal and gets the money in its electronic cash ledger.

• Deducted on value excluding GST — ₹5 lakh + ₹90,000 GST means ₹10,000 TDS

• No TDS where the supplier's location and place of supply are both in a state other than the buyer's state of registration

• Late GSTR-7: ₹50 a day (₹25 CGST + ₹25 SGST), capped at ₹2,000 (₹1,000 CGST + ₹1,000 SGST); nil returns carry no late fee

• Different from GST TCS by e-commerce operators (0.5% (0.25% CGST + 0.25% SGST, or 0.5% IGST)) and from income-tax TDS

What TDS under GST is, and why it exists

GST is normally paid by the supplier: you charge tax on your invoice, collect it from the buyer and pay it in your GSTR-3B. TDS under GST adds a check at the buyer's end. Certain buyers are told to keep back a fixed percentage of what they pay you and send it straight to the government, reporting your GSTIN against the amount. The government then sees tax arriving from two directions for the same transaction — your return and the buyer's return — which makes it harder for contractors working for public bodies to collect GST and never pay it.

The deducted amount is not an extra tax. It is an advance on your own GST. Once the buyer files its return and you accept the entry, it sits in your electronic cash ledger like money you deposited yourself, and you use it to pay your next month's liability. If you have nothing to pay, you can ask for a refund of the cash balance.

The provision has existed in the CGST Act since 2017, but it was switched on from 1 October 2018 by Notification 50/2018-Central Tax. The same notification extended it beyond pure government departments to several categories of public bodies, and an amendment in October 2024 added private buyers of metal scrap. The parallel sections of each State GST Act and the IGST Act make the deduction work for state tax and integrated tax too.

Who must deduct TDS under GST

Section 51 names four groups directly and lets the government notify more. Read together with Notification 50/2018-CT and its later amendments, the deductors are:

• Departments and establishments of the Central Government or a State Government — a district collectorate, a state PWD division, a central ministry's regional office, a government hospital.
• Local authorities — municipal corporations, municipalities, panchayats, cantonment boards.
• Governmental agencies acting for the government.
• Notified bodies: an authority, board or other body set up by Parliament, a state legislature or a government with 51% or more government equity or control; a society established by a government or such a body under the Societies Registration Act, 1860; and public sector undertakings.
• Buyers of metal scrap: from 10 October 2024, Notification 25/2024-CT added any registered person who receives metal scrap falling in Chapters 72 to 81 of the Customs Tariff (iron and steel, copper, nickel, aluminium, lead, zinc, tin and other base metals) from another registered person.

GST TDS at a glance (2026)

2% (1% CGST + 1% SGST, or 2% IGST)

Deduction on taxable value

Section 51 CGST Act

₹2.5 lakh

Contract value above which TDS applies

Excluding GST

10th of the next month

GSTR-7 due date

Rule 66

₹2,000 (₹1,000 CGST + ₹1,000 SGST)

Maximum late fee per GSTR-7

Notification 23/2024-CT

The last category is the one that catches private businesses off guard. A foundry, a re-roller or a scrap trader buying ferrous or non-ferrous scrap from a registered dealer now has the same obligations as a government office: a separate TDS registration, deduction on contracts above the threshold, and a monthly GSTR-7. It does not apply when the seller is unregistered, because there is no GSTIN to credit.

Who is left out. Notification 73/2018-CT exempts supplies between these bodies — for example, one government department buying from another, or a PSU buying from another PSU — so a state electricity board buying transformers from a central PSU does not deduct GST TDS on that bill. Private companies outside the scrap trade, banks and non-government trusts do not deduct GST TDS at all, although they may still have to deduct income-tax TDS under the Income-tax Act.

Registration. A deductor must register separately as a "tax deductor" in FORM GST REG-07, even if it already has a normal GSTIN for its own sales. There is no turnover threshold for this registration — section 24 makes it compulsory for anyone required to deduct. The registration is linked to the deductor's TAN, and the Karnataka department's FAQ notes that it is normally granted within three working days.

Rate, threshold and the value to use

The deduction is 2% (1% CGST + 1% SGST, or 2% IGST). For a sale within one state, the buyer keeps back 1% as central tax and 1% as state or Union territory tax. For an inter-state sale, it keeps back 2% as integrated tax. The rate does not change with the GST rate on the product — a 5% item and an 18% item both suffer a 2% deduction.

The ₹2.5 lakh test is per contract, not per invoice. Section 51 applies where the total value of supply under a contract exceeds the threshold. Value here means the taxable value without GST and cess. So:

• A ₹4,00,000 annual maintenance contract paid in four quarterly bills of ₹1,00,000 attracts TDS on every bill, even though no single invoice crosses ₹2.5 lakh.
• Three unrelated purchase orders of ₹2,00,000 each attract no TDS, even though together they total ₹6,00,000 — each contract is below the threshold.
• A contract of exactly ₹2,50,000 attracts no TDS; the law says "exceeds".

The value excludes tax. The deductor calculates 2% on the amount shown as the value of supply on the invoice, leaving out CGST, SGST, UTGST, IGST and cess. Deducting on the gross bill is one of the most common errors, and it creates a mismatch the supplier then has to chase.

The place-of-supply exclusion. The proviso to section 51(1) says no deduction is made where the location of the supplier and the place of supply are in a state or UT different from the buyer's state of registration. The logic: the tax on such a supply belongs to the other state, where the buyer has no registration to report it. The Goa hotel row above is the textbook case. If only one of the two — supplier location or place of supply — is outside the buyer's state, TDS still applies.

Worked example: a ₹5 lakh laptop order from a zilla parishad

A zilla parishad in Nashik, registered as a tax deductor in Maharashtra, buys 10 laptops from a Nashik computer dealer. The purchase order is a single contract.

The zilla parishad pays ₹5,80,000 in September 2026. By 10 October it deposits ₹10,000 into its own electronic cash ledger through a PMT-06 challan and files GSTR-7 for September, showing the dealer's GSTIN, the invoice and ₹5,000 + ₹5,000. Filing the return debits its cash ledger.

The dealer sees the entry in its TDS and TCS Credit Received form, accepts it and files the form. ₹10,000 lands in its electronic cash ledger — ₹5,000 under CGST and ₹5,000 under SGST. The dealer reports the full ₹90,000 output tax on this sale in its September GSTR-3B as usual — TDS does not reduce the tax on the invoice — and from October onwards it can pay ₹10,000 of any month's liability from this cash. The dealer has lost nothing; it has simply been paid part of the price in the form of a tax credit.

If income-tax TDS also applies. Government buyers often deduct income-tax TDS on the same bill, typically on works and service contracts. Suppose the bill was instead a ₹5,00,000 + ₹90,000 GST maintenance contract with a company. Income-tax TDS at 2% on contract work is calculated on ₹5,00,000 — CBDT Circular 23/2017 says the GST component is left out when it is shown separately — giving ₹10,000. GST TDS is another ₹10,000. The contractor receives ₹5,70,000 and holds two separate credits: ₹10,000 in its GST cash ledger and ₹10,000 against its PAN for income tax. The circular was issued under the Income-tax Act, 1961; from 1 April 2026 contract TDS sits in section 393 of the Income-tax Act, 2025, and the rates carried over unchanged — see our guide on what TDS is for the new section numbers.

Split a bill into value and GST before working out TDS

Sales (Add GST)Purchase (Remove GST)Price Comparison

AmountGST Rate

0%3% (Gold / silver)5%18% (Standard)40% (Sin / luxury)

Transaction Type

Intra-state (CGST + SGST)Inter-state (IGST)

Base Amount (Before GST)₹5,00,000.00

CGST (9%)₹45,000.00

SGST (9%)₹45,000.00

Total GST (18%)₹90,000.00

Total Amount (Including GST)₹5,90,000.00

Open the full GST Calculator (PDF, save, compare)

GSTR-7, the TDS certificate and the deposit

The deductor reports everything in GSTR-7, a monthly return due by the 10th of the next month. Since 1 November 2024 Rule 66 itself carries the 10th-of-the-month deadline. The return lists each deductee's GSTIN, the invoice details, the taxable value and the CGST, SGST or IGST deducted.

Payment happens through the return. There is no separate deposit form. The deductor first puts money into its electronic cash ledger with a challan, then files GSTR-7; the GST portal's FAQ explains that the tax liability is discharged from the cash ledger at the time of filing. TDS cannot be paid with input tax credit.

Certificate (GSTR-7A). Before 2021, deductors had to issue a certificate within five days and paid ₹100 a day for delay. The Finance Act 2020 rewrote section 51(3) and deleted section 51(4) with effect from 1 January 2021. The portal now generates the certificate, GSTR-7A, automatically once GSTR-7 is filed, and suppliers can download it from their own login. Pages that still warn of a ₹5,000 certificate penalty are out of date.

Corrections. If a deductee rejects an entry — wrong GSTIN, wrong amount — it is pushed back into Table 4 of the deductor's next GSTR-7, where the deductor amends it. The GST portal allows the same record to be edited there before filing, but original invoices cannot be deleted through Table 4. GSTR-7, like other returns, is subject to the three-year bar on filing returns after their due date, so a missed month cannot be put off indefinitely.

Nil returns. A deductor with no deductions in a month is not required to file a nil GSTR-7, unless rejected entries are waiting in Table 4, in which case it must file to deal with them.

Monthly routine for a GST TDS deductor

1. 1

   Check each contract against the threshold

   Flag every contract whose taxable value exceeds ₹2.5 lakh, and check the supplier's GSTIN and state against the place of supply.

   Tip: Record the contract value on the purchase order so every later bill is checked against it, not against its own invoice amount.

2. 2

   Deduct 2% when you pay

   Keep back 1% CGST + 1% SGST (or 2% IGST) of the value excluding GST on each payment under the contract.

3. 3

   Deposit through a challan

   Create a PMT-06 challan from the deductor login and pay into the electronic cash ledger before filing.

4. 4

   File GSTR-7 by the 10th

   Report deductee-wise invoice details. Filing the return debits the cash ledger and creates GSTR-7A for each supplier.

   GST portal
5. 5

   Clear rejected entries

   Amend any records the supplier rejected; they appear in Table 4 of the next month's return.

How the supplier claims the TDS credit

Suppliers often assume the credit appears automatically. It does not — the supplier has to act on the portal.

1. Find the entries. After the buyer files GSTR-7, the deduction shows up under Services → Returns → TDS and TCS Credit Received for the relevant month. It also appears in GSTR-2A.
2. Accept or reject each one. Check the buyer, invoice number and amount against your books. Accept the correct entries. Reject anything wrong — a deduction on GST-inclusive value, an amount you do not recognise — so the buyer corrects it.
3. File the form. Accepted amounts are credited to your electronic cash ledger only after you file the TDS and TCS Credit Received form. Normal taxpayers and composition taxpayers both use it.
4. Use the cash. The balance pays CGST, SGST or IGST in your GSTR-3B, as well as interest, late fees and penalties. It cannot be used to pay tax for a different GSTIN.

If the credit isn't needed — say you are a works contractor with heavy input tax credit and little cash liability — the excess cash ledger balance can be claimed as a refund through the refund application on the GST portal.

When the deduction itself was wrong. If a buyer deducted TDS it should not have — for example under a contract below the threshold, or on a Goa hotel booking that falls under the place-of-supply exclusion — the Karnataka department's FAQ notes that the deductor can claim a refund of the excess under section 54, but only while the amount has not yet been credited to the supplier's cash ledger. Once it is in your ledger, the simpler route is to use it against your own tax.

Late fees, interest and other consequences

Three things go wrong for deductors: they file late, they pay late, or they fail to deduct.

Late GSTR-7. Section 47 sets a late fee for every day of delay. Notification 23/2024-CT, which superseded an earlier 2021 waiver, limits it to ₹25 a day under the CGST Act and the same under the state Act — ₹50 a day (₹25 CGST + ₹25 SGST) in total — with a ceiling of ₹2,000 (₹1,000 CGST + ₹1,000 SGST) per return. A GSTR-7 that would have shown no deduction attracts no late fee at all, and the portal stopped computing late fees on nil GSTR-7 from the October 2024 return period.

Late payment. If the deducted amount reaches the government late, the deductor pays interest under section 50(1) at 18% a year along with the tax. On the ₹10,000 example, a two-month delay costs about ₹300 in interest.

Failure to deduct. A deductor that should have deducted and did not is still liable for the amount plus interest, and the tax officer can determine the amount due under the demand provisions (sections 73, 74 and, for periods from FY 2024-25, section 74A). The supplier is not let off its own GST in the meantime — it simply misses the advance credit.

For suppliers, the main risk is cash flow rather than penalty. Unaccepted credits sit idle on the portal while you pay your monthly GST from your bank account. Reconcile the TDS and TCS Credit Received screen every month with your receivables ledger; a short receipt from a government client with no matching portal entry is the signal to call their accounts section.

TDS vs TCS under GST vs income-tax TDS

Three similar-sounding deductions can hit the same invoice. They have different rules, returns and credits.

GST TDS vs GST TCS vs income-tax TDS

	GST TDS (s.51)	GST TCS (s.52)	Income-tax TDS
Who deducts/collects	Government bodies, notified PSUs/societies, metal scrap buyers	E-commerce operators (marketplaces)	Payers named in the Income-tax Act
Rate	2% (1% CGST + 1% SGST, or 2% IGST)	0.5% (0.25% CGST + 0.25% SGST, or 0.5% IGST)	Depends on payment: e.g. 1%/2% on contracts
Calculated on	Taxable value of contracts above ₹2.5 lakh	Net taxable value of supplies through the platform	Payment excluding GST if shown separately
Return	GSTR-7 by the 10th	GSTR-8 by the 10th of the next month	Quarterly TDS statement
Credit goes to	Supplier's GST electronic cash ledger	Seller's GST electronic cash ledger	Payee's income-tax account (Form 26AS/AIS)

Who deducts/collects

GST TDS (s.51)

Government bodies, notified PSUs/societies, metal scrap buyers

GST TCS (s.52)

E-commerce operators (marketplaces)

Income-tax TDS

Payers named in the Income-tax Act

Rate

GST TDS (s.51)

2% (1% CGST + 1% SGST, or 2% IGST)

GST TCS (s.52)

0.5% (0.25% CGST + 0.25% SGST, or 0.5% IGST)

Income-tax TDS

Depends on payment: e.g. 1%/2% on contracts

Calculated on

GST TDS (s.51)

Taxable value of contracts above ₹2.5 lakh

GST TCS (s.52)

Net taxable value of supplies through the platform

Income-tax TDS

Payment excluding GST if shown separately

Return

GST TDS (s.51)

GSTR-7 by the 10th

GST TCS (s.52)

GSTR-8 by the 10th of the next month

Income-tax TDS

Quarterly TDS statement

Credit goes to

GST TDS (s.51)

Supplier's GST electronic cash ledger

GST TCS (s.52)

Seller's GST electronic cash ledger

Income-tax TDS

Payee's income-tax account (Form 26AS/AIS)

GST TCS is collected by e-commerce operators — Amazon, Flipkart, Meesho and similar — from the money they pass on to sellers. Since 10 July 2024 the rate has been 0.5% (0.25% CGST + 0.25% SGST, or 0.5% IGST) of net taxable supplies (half the earlier 1%). The operator files GSTR-8 by the 10th of the next month, and the seller accepts the credit in the same TCS and TDS Credit Received form. Operators don't collect TCS on restaurant services where they pay the GST themselves under section 9(5).

Income-tax TDS is a different tax altogether. It is an advance payment of the supplier's income tax, deducted under what used to be sections 194C, 194J and others of the 1961 Act and, from 1 April 2026, section 393 of the Income-tax Act 2025. It shows up in your Form 26AS and annual information statement, not on the GST portal, and you claim it in your income-tax return. A government contractor routinely suffers both: 2% GST TDS and 1% or 2% income-tax TDS on the same running bill.

Common mistakes and how to fix them

Deducted on the gross amount. The supplier should reject the entry. It returns to the deductor's next GSTR-7 Table 4, where the deductor corrects the amount; the excess, still uncredited, can be refunded to the deductor or adjusted with the supplier commercially.

Wrong GSTIN. If the deductor reported the wrong supplier, the right supplier never sees the entry. The deductor amends the record in Table 4 of a later GSTR-7. Suppliers should send their GSTIN on the letterhead with the first bill to avoid this.

Scrap trader unaware of the 2024 change. A metal buyer that has been paying scrap dealers in full since October 2024 has a backlog of deductions it should have made. The cleanest fix is to register in REG-07, deposit the amounts with interest and file the pending GSTR-7 returns before an officer raises a demand — and to start deducting on new contracts at once. Speak to a GST practitioner about the exact periods.

Supplier's cash stuck. If entries are older than a few months and still unaccepted, accept and file the form now; the credit lands in the current month's cash ledger and can be used immediately.

Official links

• GST portal — login for deductors and suppliersGSTR-7, TDS and TCS Credit Received, PMT-06 challan
• GSTR-7 FAQs (GST portal user guide)Due date, nil returns, late fee, amendments
• CBIC SOP on TDS under GST (PDF)Deductor process
• Notification 25/2024-CT — metal scrap buyers (PDF)In force from 10 October 2024
• Notification 23/2024-CT — GSTR-7 late fee (PDF)₹25/day per Act, ₹1,000 cap per Act
• Karnataka CTD — FAQs on TDS under GSTPlain-language rules

What to do next

If you are a supplier to government, check your TDS and TCS Credit Received screen today and accept anything pending, then set a monthly reminder to do it before you file GSTR-3B. If you buy metal scrap or work in a public body's accounts section, confirm you hold a separate deductor registration and that your contract register records the value of each contract, not just each bill. For the wider picture, see our guides to input tax credit and GST return filing, and use the GST calculator to split any bill into value and tax before working out the 2%.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What is TDS under GST?

It is tax that certain buyers — government departments, local authorities, government agencies, notified PSUs and societies, and since 10 October 2024 buyers of metal scrap — must hold back from payments to suppliers under section 51 of the CGST Act. They deduct 2% (1% CGST + 1% SGST, or 2% IGST) of the taxable value when a contract exceeds ₹2.5 lakh, deposit it with GSTR-7, and the supplier gets the amount in its electronic cash ledger.

Is TDS under GST deducted on the GST amount too?

No. The 2% (1% CGST + 1% SGST, or 2% IGST) is worked out on the value of supply excluding CGST, SGST, IGST and cess shown on the invoice. On a ₹5,00,000 order plus ₹90,000 GST, the GST TDS is ₹10,000, not ₹11,800. Income-tax TDS follows a similar rule: CBDT Circular 23/2017 says it is deducted on the amount excluding GST when GST is shown separately.

When is GSTR-7 due and what is the late fee?

GSTR-7 is due by the 10th of the next month, and the deducted tax is paid from the deductor's cash ledger when the return is filed. After the waiver in Notification 23/2024-CT, the late fee is ₹50 a day (₹25 CGST + ₹25 SGST), capped at ₹2,000 (₹1,000 CGST + ₹1,000 SGST) per return, with no late fee on a nil GSTR-7 from the October 2024 period. Interest at 18% a year runs on tax paid late.

How does a supplier use the TDS deducted by a government buyer?

After the buyer files GSTR-7, the entry appears in the supplier's 'TDS and TCS Credit Received' form on the GST portal. The supplier must accept it and file that form; only then is the amount credited to the electronic cash ledger. It can be used to pay any GST, interest, late fee or penalty, or claimed as a refund of excess cash balance.

What is the difference between TDS and TCS under GST?

TDS (section 51) is deducted by the buyer — government bodies, notified entities and metal scrap buyers — at 2% (1% CGST + 1% SGST, or 2% IGST) and reported in GSTR-7. TCS (section 52) is collected by an e-commerce operator such as Amazon or Flipkart from payments to sellers at 0.5% (0.25% CGST + 0.25% SGST, or 0.5% IGST) and reported in GSTR-8. Both reach the supplier's cash ledger the same way.

Does a private company have to deduct TDS under GST?

Not in general. Section 51 covers government departments, local authorities, government agencies and the bodies notified in Notification 50/2018-CT. The only notified category open to ordinary private businesses is a registered buyer of metal scrap (Chapters 72 to 81) from another registered person, from 10 October 2024. A private company still deducts income-tax TDS where the Income-tax Act requires it.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 8 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.FAQs — Form GSTR-7 (GST portal user guide) — GSTN · accessed 8 October 2026
2. 2.FAQs on TDS under GST — Commercial Taxes Department, Karnataka · accessed 8 October 2026
3. 3.Standard Operating Procedure for TDS under GST — CBIC · accessed 8 October 2026
4. 4.Notification No. 23/2024–Central Tax (late fee for GSTR-7) — CBIC / GST Council · accessed 8 October 2026
5. 5.Notification No. 25/2024–Central Tax (TDS on metal scrap) — CBIC / GST Council · accessed 8 October 2026
6. 6.CBDT Circular No. 23/2017 — TDS on GST component — CBDT (copy hosted by itatonline.org) · accessed 8 October 2026
7. 7.Section 51 of the CGST Act: amendments by Finance Act 2020 — TaxTMI · accessed 8 October 2026
8. 8.GST Section 51: TDS provisions, applicability and latest amendments — AUBSP · accessed 8 October 2026
9. 9.FAQs on GST TDS and TCS Credit Received — StudyCafe (summary of GSTN FAQs) · accessed 8 October 2026