TDS Under GST — Section 51 Complete Guide

TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) are different mechanisms: TDS (Section 51): Deducted by GOVERNMENT BODIES/PSUs when they PAY a supplier — rate 2% on base value — applies to contracts > ₹2.5L — deductor files GSTR-7. TCS (Section 52): Collected by E-COMMERCE OPERATORS from sellers on their platform — rate 1% (0.5% CGST + 0.5% SGST) on NET VALUE of taxable supplies — applies to all supplies through platform — operator files GSTR-8. Key differences: (1) TDS is deducted BY the buyer (govt), TCS is collected BY the intermediary (e-commerce); (2) TDS threshold is ₹2.5L per contract, TCS has no threshold; (3) TDS is for government procurement, TCS is for platform economy regulation; (4) Both credits appear in Electronic Cash Ledger of supplier/seller.

The ₹2,50,000 threshold under Section 51 is calculated as follows: (1) It is PER CONTRACT basis — not per invoice or per payment; (2) The value considered is the CONTRACT VALUE excluding GST; (3) If a contract is for ₹3,00,000 (before GST), TDS applies on EVERY PAYMENT made under that contract — even if individual payments are below ₹2.5L; (4) Multiple separate contracts with same supplier: Each contract assessed independently; (5) If contract value is inclusive of GST (₹2,95,000 inclusive of 18% GST): Base value = ₹2,50,000 — so threshold is exactly met, TDS NOT applicable; (6) Amendment/variation orders: If original contract < ₹2.5L but amended to exceed, TDS applies from amendment date; (7) Running contracts: Annual value assessed (not monthly portions). IMPORTANT: The threshold has NOT been changed since GST implementation in July 2017.

If the TDS deductor (govt body/PSU) deducts TDS but fails to file GSTR-7, the consequences cascade: FOR DEDUCTOR: (1) Late fee ₹200/day (₹100 CGST + ₹100 SGST), max ₹5,000; (2) Interest @ 18% on TDS amount from due date to actual deposit date; (3) Cannot issue TDS certificate (GSTR-7A auto-generated only on filing); (4) Recovery proceedings can be initiated under Section 79. FOR DEDUCTEE (SUPPLIER): (1) TDS credit does NOT appear in Electronic Cash Ledger until GSTR-7 is filed; (2) Supplier cannot use the TDS amount for payment of output tax; (3) Creates cash flow problem for supplier; (4) Supplier has NO remedy except to follow up with deductor or approach GST authorities. REMEDY: Deductee should write to deductor's jurisdictional officer seeking direction to file GSTR-7. In extreme cases, approach GST Appellate Authority.

Currently NO — private companies CANNOT deduct TDS under GST. Section 51 specifies ONLY these categories: (1) Central/State Government departments; (2) Local authorities; (3) Governmental agencies; (4) Persons/categories NOTIFIED by government. As of 2025, no private companies have been notified. This is DIFFERENT from Income Tax TDS where all persons (including private companies) above threshold must deduct. WHY the difference: GST TDS was introduced primarily to track government procurement and ensure compliance by suppliers to government — not as a revenue collection mechanism for all B2B transactions. FUTURE: The GST Council has discussed expanding TDS to large private contracts (> ₹50L) but no notification has been issued. If your private company receives a government contract, the GOVERNMENT deducts TDS on your invoices — you don't deduct on your purchases.

Invoicing: Supplier issues NORMAL tax invoice for full amount including GST — Example: Base ₹10L + CGST ₹90K + SGST ₹90K = Total ₹11.80L. Payment received: Deductor pays ₹11.60L (full amount MINUS TDS ₹20K i.e., 2% of ₹10L). Full GST (₹1.80L) is paid to supplier — TDS is ONLY on base value. Accounting entries for DEDUCTEE (supplier): Dr. Bank A/c ₹11,60,000 | Dr. TDS Receivable (GST) ₹20,000 | Cr. Sales Revenue ₹10,00,000 | Cr. CGST Output ₹90,000 | Cr. SGST Output ₹90,000. When TDS reflects in Cash Ledger: Dr. Electronic Cash Ledger ₹20,000 | Cr. TDS Receivable ₹20,000. For DEDUCTOR: Dr. Expense/Asset ₹10,00,000 | Dr. CGST ITC ₹90,000 | Dr. SGST ITC ₹90,000 | Cr. Bank ₹11,60,000 | Cr. TDS Payable (GST) ₹20,000. On deposit: Dr. TDS Payable ₹20,000 | Cr. Bank ₹20,000.