The Goods and Services Tax (GST) law mandates departments or establishments of central or state government, local authorities, governmental agencies, authorities, boards or bodies set up by government, public sector undertakings (psus), societies established by government, public authorities to deduct Tax Deducted at Source (TDS) while making payments to suppliers of taxable goods or services.
The mechanism was introduced to improve tax compliance, create an audit trail of transactions, and ensure timely collection of tax by the Government.
Under Section 51 of the Central Goods and Services Tax (CGST) Act, 2017, specified deductors are required to deduct GST-TDS when making payments exceeding the prescribed threshold to suppliers under a taxable contract.
The Central Board of Indirect Taxes and Customs (CBIC) has also reminded taxpayers that the due date for filing GSTR-7 return for April 2026 is 10th May 2026, and delay in filing may attract late fee and interest.
Table of Contents
Who Is Required To Deduct TDS Under GST?
The following persons/entities are mandatorily required to deduct TDS under GST:
1. Departments or Establishments of Central or State Government
Any department or establishment of the Central Government or State Government making taxable payments to suppliers is liable to deduct GST-TDS.
This includes ministries, government departments, public offices, and administrative establishments.
2. Local Authorities
Municipal corporations, municipalities, panchayats, development authorities, and other local bodies covered under the definition of “local authority” under GST law are required to deduct TDS.
3. Governmental Agencies
Government agencies involved in public administration, infrastructure, welfare projects, or implementation of government schemes are covered under the GST-TDS provisions.
4. Authorities, Boards or Bodies Set Up By Government
Any authority, board, or body established by Parliament, State Legislature, or Government, where the Government holds 51% or more participation by way of equity or control, is required to deduct TDS.
This includes statutory bodies and many government-controlled corporations.
5. Public Sector Undertakings (PSUs)
Public sector enterprises and government companies substantially controlled by the Government are also covered under the GST-TDS framework.
6. Societies Established By Government
Societies established by the Central Government, State Government, or local authority under the Societies Registration Act are required to comply with GST-TDS provisions.
7. Public Authorities
Various public authorities notified by the Government are also required to deduct TDS while making eligible payments.
When Is GST-TDS Required To Be Deducted?
TDS under GST is required to be deducted when:
- The total value of supply under a contract exceeds ₹2.5 lakh (excluding GST amount), and
- Payment is made to a supplier of taxable goods or services.
The deduction is to be made at the time of payment or credit to the supplier, whichever is earlier.
Rate Of TDS Under GST
The prescribed rate of deduction is:
- 1% under CGST, and
- 1% under SGST/UTGST
In case of inter-State supply, 2% IGST is deducted.
Thus, the effective GST-TDS rate generally becomes 2%.
Situations Where TDS Is Not Required
GST-TDS is not required in certain cases, including:
- Where the value of taxable supply under the contract does not exceed ₹2.5 lakh;
- Where the location of supplier and place of supply are in a State different from the State of registration of the deductor;
- Exempt supplies and non-taxable supplies;
- Transactions specifically exempted by Government notifications.
Filing Of GSTR-7 Return
Persons deducting TDS under GST are required to file Form GSTR-7 on a monthly basis.
The return contains details of:
- TDS deducted,
- TDS liability payable and paid,
- Refund claimed, if any.
The due date for filing GSTR-7 is the 10th day of the succeeding month.
For the month of April 2026, the due date is 10th May 2026.
Consequences Of Non-Compliance
Failure to deduct or deposit GST-TDS may result in:
- Interest liability,
- Late fee,
- Penalty proceedings,
- Blocking of compliance records,
- Demand and recovery proceedings under GST law.
Further, delay in filing GSTR-7 can adversely affect suppliers since TDS credit appears in their electronic cash ledger only after proper filing by the deductor.
Importance Of GST-TDS Mechanism
The GST-TDS framework serves multiple purposes:
- Ensures tracking of high-value government and institutional procurements;
- Improves transparency in government expenditure;
- Strengthens tax compliance;
- Prevents revenue leakage;
- Facilitates automated reconciliation of transactions.
With increasing digital scrutiny and compliance monitoring under GST, deductors are advised to timely deduct, deposit, and report TDS liabilities to avoid legal complications and financial exposure.
Read More: LPG Subsidy Verification Tightens: Government Begins Sending SMS Notices Based on Income-Tax Records
