Taxation · Tax Deduction at Source and Collection of Tax at Source

TDS Rate, Value and Computation under GST

Updated 5 October 2026 · Fact-checked

TDS under GST is deducted at 2% of the payment made to a supplier under a contract: 1% CGST plus 1% SGST/UTGST for intra-State supplies, or 2% IGST for inter-State supplies. The base is the taxable value, excluding GST. Compute it as taxable value × 2%, then split into intra-State or inter-State.

Understand TDS Rate, Value and Computation under GST

Section 51 of the CGST Act, 2017 requires certain persons (deductors) to deduct tax from payments made to a supplier of taxable goods or services when the total value of supply under a contract exceeds ₹2,50,000. The deductors are: departments or establishments of the Central or State Government, local authorities, governmental agencies, and other persons or categories of persons notified under Section 51. The persons notified for this purpose are: an authority, a board or any other body set up by an Act of Parliament or a State Legislature, or established by any Government, with 51% or more participation by way of equity or control, to carry out any function entrusted to a municipality under Article 243W or to a Panchayat under Article 243G; societies established by the Central Government, a State Government or a local authority and registered under the Societies Registration Act; and public sector undertakings. The notified list can be amended, so check the latest notifications. The deductor pays this tax to the government and furnishes the GSTR-7 return. The amount deducted is credited to the supplier's electronic cash ledger on the basis of the deductor's GSTR-7 return, as furnished by the deductor. The supplier does not have to accept the credit for it to be made. The details also appear in the supplier's GSTR-2A/2B. The supplier can use the amount to pay output tax or claim it as a refund.

The rate is 2% of the payment. It is 1% CGST plus 1% SGST (or UTGST) when the supply is intra-State: the supplier's location and the place of supply are in the same State/UT. It is 2% IGST when the supply is inter-State: the supplier's location and the place of supply are in different States/UTs.

The value on which you deduct is the taxable value of the supply. GST charged in the invoice is excluded. If the invoice shows the GST separately, you ignore it. Tax is deducted from the amount paid or credited to the supplier on account of the taxable supply.

The threshold of ₹2,50,000 is tested on the total value of supply under a single contract, not on one invoice. The value is computed excluding GST (that is, tax under the CGST, SGST, IGST and cess laws). TDS applies only to taxable supplies.

Separately, a proviso to Section 51 gives a location exception. No tax is deducted if the location of the supplier and the place of supply are both in a State/UT different from the State/UT where the deductor (recipient) is registered. If the place of supply is in the deductor's State, TDS applies even when the supplier is in another State; the supply is then inter-State and IGST is deducted.

In exams, the work is short: find the taxable value, check the threshold, check the location proviso, decide the type of tax, and apply 2%. Do the steps in this order and show each one on its own line.

Key rules to remember

TDS rate under GST: TDS = 2% × taxable value of supply; Applies when total value of supply under a contract exceeds ₹2,50,000 and the location proviso does not bar deduction.
Intra-State supply split: CGST 1% + SGST/UTGST 1% of taxable value; Used when the supplier's location and the place of supply are in the same State/UT.
Inter-State supply: IGST 2% of taxable value; Used when the supplier's location and place of supply are in different States/UTs, unless the location proviso bars TDS (both are outside the deductor's State/UT).
Value for deduction: Taxable value = invoice value − GST (CGST, SGST, IGST, cess) shown in invoice; If the invoice is GST-inclusive, first back out GST.
Net payment to supplier: Net payment = amount payable − TDS; Amount payable includes GST. The deduction is on the taxable value only.

How to solve TDS Rate, Value and Computation under GST questions

Use this sequence for any TDS under GST computation question.

1Check whether the payer is a deductor under Section 51. The payer must be a Central or State Government department or establishment, a local authority, a governmental agency, or a person notified under Section 51. The notified persons are: an authority, a board or any other body set up by an Act of Parliament or a State Legislature, or established by any Government, with 51% or more participation by way of equity or control, to carry out any function entrusted to a municipality under Article 243W or to a Panchayat under Article 243G; a society established by the Central Government, a State Government or a local authority and registered under the Societies Registration Act; and a public sector undertaking. If the question says the payer is one of these, treat it as a deductor.
2Check the contract value. Total value of supply under the contract, excluding GST, must exceed ₹2,50,000. If it does not, TDS is nil.
3Check the location proviso. If the supplier's location and the place of supply are both in a State/UT different from the deductor's State/UT of registration, no tax is deducted.
4Find the taxable value for the payment. Remove GST from the invoice amount if it is included. TDS applies only to taxable supplies, so leave out any supply the question says is exempt.
5Decide intra-State or inter-State. If the supplier's location and the place of supply are in the same State/UT, it is intra-State. If they are in different States/UTs, it is inter-State.
6Apply 2%. For intra-State supplies, state CGST 1% and SGST/UTGST 1% separately. For inter-State supplies, state IGST 2%.
7Compute the net amount payable to the supplier by deducting TDS from the gross amount including GST.
8Write the answer in a clear working with tax-wise figures and a one-line conclusion.

Quickest way: Four-check shortcut for MCQs and short answers

When to use it: Use for MCQs and for the first lines of a descriptive answer when time is short.

Check one: is the contract value above ₹2,50,000 (excluding GST)? If not, answer nil.
Check two: are the supplier's location and place of supply both outside the deductor's State? If yes, answer nil.
Check three: strip GST. Take the base as the amount before tax.
Check four: apply 2% and split 1%+1% (intra-State) or 2% IGST (inter-State).
For MCQs, eliminate options that compute TDS on the GST-inclusive amount or that use rates other than 2%.
In written answers, show the threshold test, the location proviso, the base, the type of tax and the amount on separate lines. Each line can earn a step mark.

Common mistakes in TDS Rate, Value and Computation under GST

Deducting 2% on the invoice value including GST.
Students see one total on the invoice and apply the rate to it.
Fix: Always subtract GST first. TDS base is the taxable value.
Testing the ₹2,50,000 limit on a single invoice.
Students assume each bill is separate.
Fix: Test on the total value of supply under one contract, excluding tax.
Ignoring the deductor's State and deducting TDS when the supplier's location and place of supply are both in another State.
Students focus only on the supplier and the type of tax, and forget the proviso to Section 51.
Fix: First compare both locations with the deductor's State of registration. If both differ from it, no TDS. Otherwise, decide CGST/SGST or IGST by comparing the supplier's location with the place of supply.
Showing 2% CGST and 2% SGST.
Students confuse the total rate with the split.
Fix: The total is 2%. Intra-State splits into 1% CGST and 1% SGST/UTGST.
Paying the supplier the full amount and ignoring TDS.
Students stop after computing TDS and forget the net payment.
Fix: If the question asks for the amount paid, subtract TDS from the gross amount including GST.

Worked examples

Example 1

A State Government department, registered in that State, awards a contract to a supplier located in the same State for supply of goods, with the place of supply in that State. Contract value ₹6,00,000 excluding GST. The department pays an invoice of ₹4,00,000 plus 18% GST (₹72,000), total ₹4,72,000. Compute TDS under GST and the net amount paid.

Show the solution

A department of the State Government is a specified deductor under Section 51. Contract value ₹6,00,000 exceeds ₹2,50,000, so TDS applies.
The supplier's location and place of supply are in the deductor's own State, so the location proviso does not bar TDS.
Taxable value of the payment = ₹4,00,000.
The supplier's location and the place of supply are in the same State, so the supply is intra-State.
CGST TDS = 1% × ₹4,00,000 = ₹4,000. SGST TDS = 1% × ₹4,00,000 = ₹4,000. Total TDS = ₹8,000.
GST on invoice = 18% × ₹4,00,000 = ₹72,000. Gross invoice = ₹4,72,000.
Net payment = ₹4,72,000 − ₹8,000 = ₹4,64,000.

Answer: TDS = ₹8,000 (CGST ₹4,000 and SGST ₹4,000). Net payment to the supplier = ₹4,64,000.

Example 2

A local authority registered in State A pays ₹5,90,000 to a supplier located in State B for services. The place of supply is in State A. The amount includes IGST at 18%. The total value of the contract exceeds ₹2,50,000. Compute TDS under GST and the net amount paid.

Show the solution

A local authority is a specified deductor under Section 51 and the contract value exceeds ₹2,50,000, so TDS applies.
The place of supply is in State A, the deductor's own State. The supplier's location and place of supply are not both outside State A, so the location proviso does not bar TDS.
The payment is GST-inclusive. Taxable value = ₹5,90,000 ÷ 1.18 = ₹5,00,000.
The supplier's location (State B) and the place of supply (State A) are in different States, so the supply is inter-State and IGST applies.
TDS = 2% × ₹5,00,000 = ₹10,000 IGST.
Net payment = ₹5,90,000 − ₹10,000 = ₹5,80,000.

Answer: TDS = ₹10,000 under IGST. Net payment to the supplier = ₹5,80,000.

Exam tips

Write the threshold test as the first line. Many answers lose a mark by skipping it.
Always show the base as taxable value excluding GST, even if the question gives only the total.
Note the deductor's State, the supplier's location and the place of supply before choosing the tax. If the supplier and place of supply are both outside the deductor's State, TDS is nil.
For intra-State supplies, show CGST and SGST as separate figures. For inter-State supplies, show IGST only.
If asked for the amount paid to the supplier, include the net payment line. It is an easy extra mark.
In MCQs, check whether the given amount includes GST before applying 2%.

Practice questions from Tax Deduction at Source and Collection of Tax at Source

TDS Rate, Value and Computation under GST in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA FinalTDS under GST: Section 51 and Deductors

TDS Rate, Value and Computation under GST: frequently asked questions

What is the rate of TDS under GST?

The rate is 2% of the taxable value. For intra-State supplies this is 1% CGST and 1% SGST/UTGST. For inter-State supplies it is 2% IGST.

Is TDS under GST deducted on the amount including GST?

No. The base is the payment value excluding GST. If the invoice shows GST separately or the payment is GST-inclusive, remove the GST first.

Does the ₹2,50,000 limit apply per invoice?

No. It is tested on the total value of supply under a contract, computed excluding GST (CGST, SGST, IGST and cess). TDS applies only to taxable supplies. If the contract value exceeds the limit, TDS applies as per Section 51.

How is TDS under GST computed on amounts paid or credited to the supplier?

Tax is deducted from the amount paid or credited to the supplier on account of the taxable supply under the contract. The deduction is 2% of the amount excluding GST, provided the payer is a deductor, the contract value exceeds the threshold, and the supplier's location and place of supply are not both outside the deductor's State.