Tax Deducted at Source (TDS) under GST is one of the least discussed yet highly consequential provisions in the indirect tax regime. Unlike income tax TDS, GST-TDS is transaction-linked and compliance-heavy, directly impacting both deductors (government entities, PSUs, local authorities, notified persons) and deductees (suppliers). The mechanism ensures early revenue collection, transparency in government-linked contracts, and a check on tax evasion.
The compliance backbone for this mechanism is GSTR-7, a mandatory return that reflects all GST-TDS transactions. Yet, many businesses and suppliers struggle with applicability, thresholds, credit flow, and procedural nuances. This guide aims to decode Section 51 of the CGST Act and Rule 66 of the CGST Rules, along with recent updates, to provide a 360° perspective for both deductors and suppliers.
Statutory Framework
🔹 Section 51 of the CGST Act, 2017
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Who deducts?
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Departments/establishments of Central & State Governments
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Local authorities
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Government agencies
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Notified persons (e.g., PSUs, authorities with >₹20 crore contract value, etc.)
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When to deduct?
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When total value of supply under a contract (excluding GST & cess) exceeds ₹2,50,000.
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Deduction is at 2% (1% CGST + 1% SGST or 2% IGST).
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When not required?
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Exempt/nil-rated supplies
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Imports
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Inter-branch stock transfers (same PAN)
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Contracts where total taxable value ≤ ₹2.5 lakh
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🔹 Rule 66 of the CGST Rules, 2017
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Return Filing – Deductor must file GSTR-7 by the 10th of the following month.
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Payment – TDS deducted must be deposited to the Government by the 10th.
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Certificate – System-generated GSTR-7A TDS certificate must be issued to the supplier within 5 days of deposit.
GSTR-7 Return Compliance
Information to be furnished:
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GSTIN of the supplier (deductee)
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Contract value and invoice details
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Amount paid/credited to supplier
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Tax deducted at source (CGST/SGST/IGST)
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TDS paid to government
Procedural Steps:
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Login to GST portal → Services → Returns → GSTR-7
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Fill deductee-wise invoice details & TDS amount
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Offset liability via cash ledger → submit → file with DSC/EVC
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Auto-generation of GSTR-7A TDS Certificate
Credit Flow to Supplier
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Supplier gets auto-populated TDS credit in their Electronic Cash Ledger once the deductor files GSTR-7.
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Supplier can use this credit to pay GST liability or claim refund.
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No manual follow-up required; credit reflects automatically once deductor complies.
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Delay in filing by deductor = delay in credit to supplier, impacting supplier’s working capital.
Applicability Triggers & Thresholds
| Particulars | Applicability |
|---|---|
| Threshold | Contract value > ₹2.5 lakh (excluding GST) |
| Rate | 2% (1% CGST + 1% SGST) / 2% IGST |
| Timing | Deduct at time of payment or credit, whichever earlier |
| Exemption | Supplies exempt from GST, imports, intra-entity transfers |
Responsibility & Compliance Perspective
For Deductor (Govt./PSUs/Agencies)
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Ensure TDS deduction & timely deposit by 10th.
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File GSTR-7 accurately to avoid interest/penalty.
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Generate GSTR-7A certificate for suppliers.
For Supplier (Deductee)
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Verify GSTR-7A certificate for accuracy.
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Ensure TDS credit reflects in electronic cash ledger.
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Adjust credit against tax liability or claim refund if excess.
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Follow up with deductor if filing delayed.
Penalties & Consequences
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Late filing of GSTR-7 → ₹100/day per Act (CGST + SGST), max ₹5,000 each.
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Interest on delayed deposit @18% p.a.
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Non-issuance of TDS certificate → Penalty of ₹100/day up to ₹5,000.
Recent Procedural Updates
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Auto-population of TDS credit in supplier’s ledger is now seamless.
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Online TDS certificate (Form GSTR-7A) generated automatically—no manual filing required.
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GSTN improvements: real-time reflection of TDS credits, reducing disputes.
Practical Insights
Deductors must track contract value (not invoice-wise) to check threshold.
Suppliers should reconcile TDS credits monthly with GSTR-2A/2B.
TDS credit can only be utilized for tax payment/refund, not ITC.
Delays by deductor impact supplier’s liquidity—making follow-up crucial.
Quick Visual Snapshot (Deductor vs. Supplier)
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Deductor’s Duty → Deduct TDS → Deposit → File GSTR-7 → Generate Certificate
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Supplier’s Benefit → Auto credit in cash ledger → Adjust liability/refund → Reconcile
Conclusion
GSTR-7 is not just a formality—it is a compliance bridge between deductors and suppliers under GST. For deductors, it ensures legal adherence and avoids penalties; for suppliers, it safeguards rightful cash ledger credits and liquidity. Understanding Section 51, Rule 66, and procedural updates is crucial to eliminate disputes, ensure smooth contract execution, and maintain trust between stakeholders.
