Tax Deducted at Source (TDS)

TDS Provisions

Relevant Under the GST regime, section 51 of the CGST Act, 2017 prescribes the
Section authority and procedure for ‘Tax Deduction at Source’.

Rate & TDS is to be deducted at the rate of 2 % on payments made to the

This value shall exclude the taxes leviable under GST (i.e. ‘Central tax’,
‘State tax’, ‘UT tax’, ‘Integrated tax’ & Cess).

No TDS No deduction of Tax is required when the location of supplier and place
of supply is different from the State of the registration of the recipient.

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Who could be (a) A department or an establishment of the Central Government or
liable to deduct State Government; or
TDS under GST (b) Local authority; or
law? (c) Governmental agencies; or
(d) An authority or a board or any other body,—
(i) Set up by an Act of Parliament or a State Legislature; or
(ii) Established by any Government
With fifty-one per cent or more participation by way of equity or control,
to carry out any function; or
(e) A society established by the Central or any State Government or a
Local Authority and the society is registered under the Societies
Registration Act, 1860.
(f) Public sector undertakings.

DDO The above category persons also called as Drawing and Disbursement
Officers (DDO’s) who are required to deduct tax in accordance with the
provisions of the GST Laws.

Conditions for Tax deduction is required if all the following conditions are satisfied –
& amount of
deduction (a) Total value of taxable supply > `2.5 Lakh under a single contract. This
value shall exclude taxes & cess leviable under GST.

(b) If the contract is made for both taxable supply and exempted supply,
deduction will be made if the total value of taxable supply in the contract
> `2.5 Lakh. This value shall exclude taxes & cess leviable under GST.

(c) Where the location of the supplier and the place of supply are in the
same State/UT, it is an intra-State supply and TDS @ 1% each under CGST
Act and SGST/UTGST Act is to be deducted if the deductor is registered
in that State or Union territory without legislature.

(d) Where the location of the supplier is in State A and the place of supply
is in State or Union territory without legislature - B, it is an inter-State
supply and TDS @ 2% under IGST Act is to be deducted if the deductor is
registered in State or Union territory without legislature - B.

(e) Where the location of the supplier is in State A and the place of supply
is in State or Union territory without legislature B, it is an inter-State
supply and TDS @ 2% under IGST Act is to be deducted if the deductor is
registered in State A.

(f) When advance is paid to a supplier on or after 01.10.2018 to a supplier

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TDS on Metal Reverse charge mechanism will be applied to the supply of metal scrap
Scrap from unregistered to registered persons. Suppliers must register once
they surpass the threshold limit, while recipients will be responsible for
paying tax under RCM [Notification No. 06/2024 – CT (rate) dated 8
October 2024, Notification No. 24/2024 – Central Tax dated 9 October
2024].

TDS @2% applicable on business-to-business (B2B) supply of metal scrap

This change expands the scope of TDS under Section 51 of the CGST Act,
which previously applied mainly to government bodies and public
sector.

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When tax (a) Total value of taxable supply ≤ `2.5 Lakh under a contract.
deduction is not (b) Contract value > `2.5 Lakh for both taxable supply and exempted
required to be supply, but the value of taxable supply under the said contract ≤ `2.5
made under Lakh.
GST (c) Receipt of services which are exempted. For example, services
exempted under notification No. 12/2017-Central Tax (Rate), dated
28.06.2017 as amended from time to time.
(d) Receipt of goods which are exempted. For example, goods exempted
under notification No. 2/2017-Central Tax (Rate), dated 28.06.2017 as
amended from time to time.
(e) Goods on which GST is not leviable. For example, petrol, diesel,
petroleum crude, natural gas, aviation turbine fuel (ATF) and alcohol for
human consumption.
(f) Where a supplier had issued an invoice for any sale of goods in respect
of which tax was required to be deducted at source under the VAT Law
before 01.07.2017, but where payment for such sale is made on or
after 01.07.2017 [Section 142(13) refers].
(g) Where the location of the supplier and place of supply is in a
State(s)/UT(s) which is different from the State/UT where the deductor
is registered.
(h) All activities or transactions specified in Schedule III of the CGST/SGST
Acts 2017, irrespective of the value.
(i) Where the payment relates to a tax invoice that has been issued
before 01.10.2018.

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 (j) Where any amount was paid in advance prior to 01.10.2018 and the
tax invoice has been issued on or after 01.10.18, to the extent of advance
payment made before 01.10.2018.
(k) Where the tax is to be paid on reverse charge by the recipient i.e. the
deductee.
(l) Where the payment is made to an unregistered supplier.
(m) Where the payment relates to “Cess” component

Authorities ~ Central Government has amended the earlier Notification No 50/ 2018-
under Ministry Central Tax, dated 13th September 2018 to exempt certain authorities of
of Defence Ministry of Defence from the compliance of TDS provisions.
exempted from
TDS provisions ~ CBIC has now notified that TDS provisions prescribed under section
51(1)(a) of CGST Act shall not be applicable to authorities under the
Ministry of Defence other than those specified in the annexure to
notification, w.e.f 1st October 2018.

Exemption from Central Government vide N. No. 73/2018-CT, dated 31st December, 2018
TDS -Supplies notified exemption to supplies made by Government Departments and
made by PSUs to other Government Departments and vice-versa from TDS.
Government
Departments
and PSUs to
other
Government
Departments
and vice-versa.
Deductor is Registration to be done through the common portal www.gst.gov.in by
required to take using PAN/TAN. It is in addition to normal registration
registration
[Sec 24(vi)]

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Illustration 1
Supplier X makes supply worth `11,800/- (inclusive of GST) to a Municipality where contract for supply
is for `15,00,000/-. The rate of GST is 18%. Supplier and the deductor are in the same State.
Find the following:
(a) Whether TDS to be deducted by Municipality?
(b) Net payment to Supplier X after TDS?

Solution:
(a) Yes.
(b) Following payment is being made by this Municipality to X: `10,000 (value of Supply) + `900 (Central
Tax)+ `900 (State Tax).
Value of supply = `10,000 (`11,800 × 100/118)
Tax to be deducted from payment: Central Tax = 1% on `10,000 = `100; State Tax = 1% on `10,000 =
`100
Payment due to X after TDS as per GST provisions: `11600/- (i.e. `11,800 – 200)

Illustration 2 Supplier Y of Mumbai makes taxable supply worth `10,000 & exempted supply worth
`20,000/- in an invoice/ bill of supply to Finance Deptt. of GoI located in New Delhi where contract for
supply is for `6,00,000/- (`2,60,000 for taxable supply including GST and `3,40,000 for exempted
supply). The rate of GST is 18%. Following payment is being made by GoI to Y: `10,000 (value of taxable
Supply) + `1,800 (Integrated Tax) + `20,000/- (value of exempted Supply). Whether any deduction of
tax is required?

Solution: No. Value of taxable supply in the contract = `2,60,000 (including GST) Value of such contract
excluding tax= 260000 × 100/118 = `2,20,340 Since, the value of taxable supply in the contract does
not exceed `2.5 Lakh, deduction of tax is not required.

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Illustration 3 Supplier ZA is a person registered under the composition scheme in Jharkhand who makes
taxable supply worth `10,000 to a Local Authority of Jharkhand where value of taxable supply under
the contract is for `2, 55,000. Find the TDS if any?

Solution: Following payment is being made by the Local Authority of Jharkhand to ZA: `10,000 Value
of taxable supply under the contract is `2,55,000 which is more than `2.5 Lakh and hence deduction of
tax is required. TDS towards: CGST = 1% on `10,000 = `100 SGST = 1% on `10,000 = `100 Total TDS =
`200

Deductor of Deductor of GST TDS is not required to issue any TDS certificate. It means
TDS need not the deductee can take credit of tax deducted on the basis of details of
issue certificate tax deducted and uploaded by the deductor under section 39(3) of CGST
of TDS Act, 2017. The details are available in the GSTR-7 return filed by the
deductor will be auto populated in GSTR-2B of deductee. Hence, any
further certificate is not required.

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Late Fee Waiver:

The total late fee payable under Section 47 for failure to file FORM GSTR-7 by the due date is capped
at one thousand rupees.

Invoice-wise In addition to the waiver, the GST Council has recommended that
Details in GSTR- registered persons must provide invoice-wise details of the tax deducted
7 at source (TDS) in FORM GSTR-7. This ensures that there is greater
transparency and traceability of TDS amounts deducted by registered
persons.

Illustration 4
X Ltd supplier has received two different purchase orders from Education Department a unit of State
Government
of Tamil Nadu specified under Section 51. The details of two purchase orders are—
(a) Purchase Order No. 001 for `3,00,000 (inclusive of tax `60,000)
(b) Purchase Order No. 002 for `3,50,000.
Person has received goods in the month of July 20XX. The bills are approved and payment is made on
15-8-20XX.

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Find the following—
(a) Quantum of TDS and person liable to deduct TDS u/s 51.
(b) Last date of payment of TDS
(c) Date of furnishing certificate to supplier (i.e. Form GSTR-7A)
(d) Date of furnishing return (i.e. From GSTR-7)
(e) Penalty for late furnishing of Form GSTR-7A

Solution:
(a) TDS @2% on Purchase Order No. 002 = `7,000 (`3,50,000 × 2%) Person liable to deduct TDS is
Education Department of T.N. State. Note: Purchase Order No. 001, value after deducting tax `2,40,000
(i.e. `3,00,000 – 60,000) and not attract TDS provision u/s 51 of CGST Act, 2017
(b) Last date of payment of TDS is 10-09-20XX
(i.e. Specified person shall be paid to the credit of the appropriate Government within 10 days after
the end of the month in which such deduction is made)
(c) Date of furnishing certificate to supplier (i.e. Form GSTR-7A)
Last date = 15-9-20XX
(i.e. certificate is required to be furnished within 5 days of crediting the amount to the appropriate
Government)
(d) Date of furnishing return (i.e. From GSTR-7)
Last date of furnishing return = 10-09-20XX
(i.e. Submit return in Form GSTR-7 within 10 days after the end of the month in which deduction was
made).
(e) Penalty for late furnishing of Form GSTR-7A is nil.

Illustration 5 Raj Departments, registered in Delhi, is engaged in supply of various goods and services
exclusively to Government departments, agencies etc. and persons notified under section 51 of the
CGST Act, 2017. It has provided the information relating to the supplies made, their contract values
and the payment due against each of them in the month of October, 20XX as under:

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You are required to determine amount of tax, if any, to be deducted from each of the receivable given
above assuming the rate of CGST, SGST and IGST as 9%, 9% and 18% respectively. Will your answer be
different, if Raj Departments is registered under composition scheme?

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