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

TDS under GST: Section 51 and Who Must Deduct

Updated 4 October 2026 · Fact-checked

TDS under GST is a 2% deduction that notified government bodies and similar persons make under Section 51 CGST Act when they pay a supplier under a contract whose taxable value exceeds ₹2,50,000. To solve a question, check the deductor, contract value excluding GST, taxability, RCM and place of supply, then compute 2%.

Understand TDS under GST: Section 51 and Who Must Deduct

Some buyers are large and traceable, such as government departments and public sector undertakings. Section 51 of the CGST Act, 2017 makes these buyers hold back a small part of the payment and deposit it with the government. This is tax deducted at source (TDS) under GST. It is an advance collection of the supplier's GST. It is not an extra tax.

Section 51 does not apply to everyone. It applies only to persons the law names or the Government notifies. These are called deductors. The Act itself covers a department or establishment of the Central or State Government, a local authority, and governmental agencies. By notification (Notification 50/2018-Central Tax, effective 1 October 2018), the Government added more persons: an authority, board or other body set up by Parliament or a State Legislature by law, or established by any Government, with 51% or more participation by way of equity or control (the 51% test applies only to bodies established by Government); societies established by the Central or State Government or a local authority; and public sector undertakings. A person notified as a deductor must also take a special registration for TDS.

The deductor must deduct only when the total value of supply under a contract exceeds ₹2,50,000. The test is on the contract, not on a single invoice or a single payment. The value is the taxable value, and it excludes the GST shown in the invoice. 'Exceeds' means exactly ₹2,50,000 does not attract TDS.

The rate is 2% of the taxable value: 1% CGST plus 1% SGST/UTGST for an intra-State supply, or 2% IGST for an inter-State supply. The deductor deducts from the payment made or credited to the supplier. The amount deducted is credited to the supplier's electronic cash ledger on the basis of the deductor's GSTR-7 return, and the supplier can use it to pay tax.

The exam focus is on when TDS is not required. It is not required where the supply is not taxable (exempt, nil-rated or non-GST supplies), where the recipient pays tax under reverse charge, where the contract value does not exceed ₹2,50,000, or where both the supplier's location and the place of supply are in a State different from the State of registration of the deductor.

Key rules to remember

Legal basis: Section 51, CGST Act, 2017; Notified deductors deduct tax from payment to a supplier of taxable goods or services or both.
Threshold: Deduct only if value of taxable supply under a contract > ₹2,50,000; Value excludes GST shown in the invoice. Exactly ₹2,50,000 means no TDS. The test applies to each contract, not each invoice.
Rate of TDS: Intra-State: 1% CGST + 1% SGST/UTGST. Inter-State: 2% IGST; Total 2% of the taxable value.
TDS amount: TDS = 2% × (Contract taxable value excluding GST); Use only when the supply is taxable and the other conditions are met.
Who are deductors: Government departments or establishments, local authorities, governmental agencies, and notified persons (boards, authorities, societies, PSUs); A private company is not a deductor merely because it buys from a supplier.
Cases where no TDS is deducted: Contract value ≤ ₹2,50,000; supply not taxable; RCM applies; supplier location and place of supply both in a State different from the deductor's State of registration; State the reason in the answer. Each exclusion is a separate mark.

How to solve TDS under GST: Section 51 and Who Must Deduct questions

Use this order for any question on who must deduct TDS under GST. Writing each check separately earns step marks.

1Identify the payer. Check whether it is a Government department or establishment, local authority, governmental agency, or a notified person such as a PSU or a notified board or society. If not, write that Section 51 does not apply.
2Identify the supply. Check that it is a taxable supply of goods or services or both under a contract. Exempt, nil-rated and non-GST supplies are outside TDS.
3Check for reverse charge. If the recipient pays tax under RCM on that supply, no TDS applies.
4Check the location test. If the supplier's location and the place of supply are both in a State different from the State of registration of the deductor, no TDS applies. If only one of them is in the deductor's State, TDS still applies.
5Find the contract value excluding GST. Add all supplies under the same contract. If the value does not exceed ₹2,50,000, no TDS applies.
6Compute TDS at 2% of the taxable value. Split it as 1% CGST + 1% SGST for intra-State supply, or 2% IGST for inter-State supply.
7Compute the net payment to the supplier: invoice value including GST minus TDS. State briefly that the deductor must deposit the amount and issue a certificate.

Quickest way: Four-gate check in 60 seconds

When to use it: Use this for MCQs and for the opening lines of a descriptive answer where you must say whether TDS applies.

Gate 1: Is the payer a government body, local authority or notified person? If no, stop. No TDS.
Gate 2: Is the supply taxable and not under RCM? If no, stop.
Gate 3: Is the contract's taxable value (excluding GST) above ₹2,50,000? Watch for the figure exactly equal to ₹2,50,000 or a value that includes GST.
Gate 4: Are the supplier's location AND the place of supply both in a State different from the deductor's registration State? If yes, no TDS. Otherwise, TDS = 2% of taxable value (CGST + SGST if intra-State, IGST if inter-State). For MCQs, eliminate options that deduct on the GST-inclusive figure or at the wrong rate.

Common mistakes in TDS under GST: Section 51 and Who Must Deduct

Calculating the threshold on the invoice value including GST.
The payment figure given in the question includes GST, so students use it directly.
Fix: Remove GST first. Compare only the taxable value with ₹2,50,000, and compute TDS on that same value.
Deducting TDS when the contract value is exactly ₹2,50,000.
Students read the rule as 'up to' or 'from' ₹2,50,000.
Fix: The condition is that the value exceeds ₹2,50,000. At exactly ₹2,50,000 there is no deduction.
Applying the threshold to each invoice or payment instead of the contract.
Questions give payments in instalments, and students think each one is a separate test.
Fix: Add all supplies under one contract and test the total. Separate contracts are tested separately.
Treating every buyer as a deductor, such as a private company.
Students confuse GST TDS with income-tax TDS, which applies to many payers.
Fix: Write the list of deductors from memory: government departments or establishments, local authorities, governmental agencies, and notified persons.
Deducting TDS on supplies covered by reverse charge or on exempt supplies.
Students check only the amount and the payer and forget to check taxability.
Fix: Ask whether the supply is taxable and whether the recipient already pays tax under RCM. If the answer is exempt or RCM, say no TDS.
Ignoring the State test and deducting TDS on a supply where the supplier's location and the place of supply are both in a different State from the deductor's State of registration.
Students think a big contract with a government body always attracts TDS.
Fix: Compare the supplier's location and place of supply with the deductor's State of registration. If both lie in another State, no deduction is made. If either is in the deductor's State, TDS applies.

Worked examples

Example 1

A municipal corporation (a local authority registered in Maharashtra) awards a road repair contract to a registered contractor in Maharashtra. The taxable value is ₹4,00,000 and GST is charged at 18%. Compute the TDS under GST and the net payment to the contractor.

Show the solution

The municipal corporation is a local authority, so it is a deductor under Section 51.
The supply is a taxable service. It is not under reverse charge. The supplier and place of supply are in the deductor's State.
Taxable value ₹4,00,000 exceeds ₹2,50,000, so TDS applies.
The supply is intra-State. TDS = 1% CGST + 1% SGST. CGST: 1% × ₹4,00,000 = ₹4,000. SGST: 1% × ₹4,00,000 = ₹4,000. Total TDS = ₹8,000.
Invoice value = ₹4,00,000 + 18% (₹72,000) = ₹4,72,000.
Net payment = ₹4,72,000 − ₹8,000 = ₹4,64,000.

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

Example 2

A public sector undertaking registered in Delhi enters into four contracts. State whether TDS under GST applies, and compute it where it does. (A) Supply of goods from a Delhi supplier, taxable value ₹2,50,000. (B) Supply of goods from a Delhi supplier, taxable value ₹6,00,000. (C) Legal services from an advocate, taxable value ₹5,00,000, where the PSU pays GST under reverse charge. (D) Supply of goods by a Mumbai supplier, delivered in Mumbai, taxable value ₹8,00,000.

Show the solution

The PSU is a notified person and is a deductor. Now test each contract.
Contract A: the value is exactly ₹2,50,000. It does not exceed the threshold, so no TDS.
Contract B: the value ₹6,00,000 exceeds ₹2,50,000. The supply is taxable and intra-State. TDS = 2% × ₹6,00,000 = ₹12,000, split as CGST ₹6,000 and SGST ₹6,000.
Contract C: the PSU pays tax under reverse charge on the advocate's services. TDS does not apply.
Contract D: the supplier's location and the place of supply are both in Maharashtra, a State different from Delhi, where the deductor is registered. No TDS applies.

Answer: A: no TDS. B: TDS ₹12,000 (CGST ₹6,000 + SGST ₹6,000). C: no TDS because of RCM. D: no TDS because of the State test.

Exam tips

Write the legal basis first: 'Section 51, CGST Act, 2017'. Then name the deductor category. This gives you the provision and facts marks before the conclusion.
In numerical questions, state the contract's taxable value excluding GST before computing. Examiners often give a GST-inclusive figure as a trap.
In MCQs, check for the exact ₹2,50,000 figure and for RCM or exempt supplies. These are the usual reasons the answer is 'no TDS'.
Write the CGST and SGST (or IGST) split of the 2% clearly. A split of 1% + 1% for intra-State and 2% IGST for inter-State earns a mark.
When asked 'when is TDS not required', write a short list: value not above ₹2,50,000, non-taxable supply, RCM, and the State test. Add one line of reason for each.

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

TDS under GST: Section 51 and Who Must Deduct: frequently asked questions

Who is liable to deduct TDS under GST?

Government departments or establishments, local authorities and governmental agencies are covered by the Act. The Government has also notified authorities, boards and bodies set up by Parliament or a State Legislature by law, or established by any Government with 51% or more participation by way of equity or control, along with certain societies and public sector undertakings. A private business is not a deductor under Section 51.

Is the ₹2.5 lakh limit tested per invoice or per contract?

It is tested on the total value of taxable supply under one contract. Instalments and several invoices under the same contract are added together. The value excludes GST, and TDS applies only if it exceeds ₹2,50,000.

What is the rate of TDS under GST?

The rate is 2% of the taxable value. For an intra-State supply this is 1% CGST and 1% SGST (or UTGST). For an inter-State supply it is 2% IGST.

When is TDS under GST not applicable?

It does not apply when the contract value does not exceed ₹2,50,000, when the supply is not taxable, or when the recipient pays tax under reverse charge. It also does not apply when both the supplier's location and the place of supply are in a State different from the deductor's State of registration.