The TDS under GST (Tax Deducted at Source) ensures transparency in tax collection and prevents revenue leakage. Many taxpayers ask: On what payment TDS has to be deducted under GST? To answer this, we need to understand the threshold limits, the type of payments covered, and the notified deductors.
🔹 What is TDS under GST?
TDS under GST means that certain notified entities must deduct tax while making payment to suppliers. Unlike TDS in Income Tax, here the deduction applies only when the supply value and payment conditions cross a specific threshold.
🔹 When Does TDS Apply in GST?
You must deduct TDS under GST if the following conditions are met:
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The contract value exceeds ₹2.5 lakh (excluding GST and cess).
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The payer is a government department, local authority, or notified PSU.
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The supply is made to such an entity, and both the supplier and place of supply fall under GST coverage.
🔹 Payments Where TDS is Deducted Under GST
The following examples clarify on what payment TDS is deducted under GST:
| Type of Payment | TDS Deductible? |
|---|---|
| Supply of goods or services > ₹2.5 lakh to govt. | ✅ Yes |
| Works contract services to government agencies | ✅ Yes |
| Payment made by local authority/PSU | ✅ Yes |
| Import of goods and services | ❌ No |
| Inter-state supply with different states | ❌ No |
| Payment below threshold limit | ❌ No |
As you can see, TDS applies mainly in government-related contracts above the threshold.
🔹 Important Rules for GST TDS Payments
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Deduct TDS at 2% of taxable value (1% CGST + 1% SGST or 2% IGST).
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Deposit TDS by the 10th of the following month using GSTR-7.
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Ensure the deducted amount reflects in the supplier’s electronic cash ledger for credit utilization.
🔹 Why Does GST Require TDS?
The government introduced TDS in GST for several reasons. First, it ensures tax collection at the source itself. Second, it minimizes tax evasion. Third, it creates a transparent reporting system for large government and PSU contracts.
Conclusion
To summarize, TDS under GST applies on payments made by government bodies and notified entities when the contract value exceeds ₹2.5 lakh. Businesses dealing with such contracts must deduct, deposit, and report TDS on time. Consequently, following these rules helps avoid penalties and ensures smooth GST compliance.
👉 For expert help with GST TDS filing, contact HelpTax