TDS under GST (Tax Deducted at Source) is a mechanism where certain notified persons — mainly government departments, local authorities, and specified government agencies — must deduct tax at source when paying suppliers for taxable goods or services above a set contract value, and deposit it with the government on the supplier’s behalf. It’s governed by Section 51 of the CGST Act, and it’s a completely different mechanism from TDS under the Income Tax Act, even though the name is the same.
How TDS Under GST Works
When a notified deductor pays a supplier for taxable goods or services above the applicable threshold, they deduct GST TDS at a set rate from the payment and deposit it with the government. The supplier (deductee) then gets credit for the deducted amount in their electronic cash ledger, which they can use to offset their own GST liability — the deducted amount isn’t lost, it’s an advance credit toward what the supplier already owes.
Who Needs to Deduct TDS Under GST?
Only specifically notified persons are required to deduct GST TDS, including:
- Government departments and establishments
- Local authorities
- Governmental agencies
- Certain other notified persons, such as specified public sector undertakings
Most private businesses are not required to deduct TDS under GST. If you run a typical SMB, this obligation usually doesn’t apply to you as a deductor — though you may still be a deductee if you supply goods or services to a notified government body or agency.
TDS Under GST vs Income Tax TDS
This is the single most common point of confusion, since both share the same name and both involve tax being withheld before it reaches you in full:
| TDS Under GST | TDS Under Income Tax | |
|---|---|---|
| Governing law | Section 51, CGST Act | Income Tax Act, 1961 |
| Who deducts | Notified persons — government departments, local authorities, specified agencies | A much wider range of persons — employers, and businesses paying rent, professional fees, contractors, and more |
| What it applies to | Payments to suppliers for taxable goods/services under GST | Salaries, professional fees, rent, contractor payments, and more |
| Return filed | GSTR-7 | Form 24Q / 26Q |
| Credit mechanism | Credited to the supplier’s electronic cash ledger under GST | Credited against the deductee’s income tax liability, visible in Form 26AS |
They’re entirely separate systems, deducted under different laws, for different purposes — a business can be affected by both, neither, or just one, depending on what it does.
How YourBooks Supports GST TDS
GST TDS compliance is built natively into YourBooks — not a separate add-on or manual workaround — alongside GST filing, e-invoicing, and e-way bills, so deductors and deductees can manage it from the same platform as the rest of their accounting.
Common Questions
Does TDS under GST apply to all businesses?
No. TDS under GST only applies to notified deductors — mainly government departments, local authorities, and specified government agencies making payments above the threshold. Most private businesses are not required to deduct TDS under GST, though they can still be deductees if they supply goods or services to a notified deductor.
What’s the difference between TDS and TCS under GST?
TDS (Tax Deducted at Source) applies to notified deductors paying suppliers. TCS (Tax Collected at Source) is a separate mechanism that applies to e-commerce operators, who collect tax on the net value of taxable supplies made through their platform. They’re governed by different sections of the CGST Act and serve different purposes.
What return do TDS deductors need to file?
TDS deductors file GSTR-7 monthly, and must issue a TDS certificate (GSTR-7A) to each deductee, showing the tax deducted and deposited on their behalf.
Do the exact TDS rate and threshold change?
Yes — GST TDS rates and thresholds are set by the government and can be revised. Always confirm current figures on the official GST portal before relying on them for compliance decisions.