GST TDS & TCS — Complete Guide for Contractors, E-Commerce & Government Departments
By Parul Singh, GST Practitioner · GST Compliance · Updated June 2026
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What is GST TDS?
In my 15+ years as a GST Practitioner in Karol Bagh, I have handled GST TDS compliance for dozens of government contractors and large businesses. Tax Deducted at Source (TDS) under GST is very different from income tax TDS — and this confusion is the number one problem I see among new contractors in Delhi.
Under Section 51 of the CGST Act 2017, certain specified persons are required to deduct tax at source from the payment made to suppliers of goods or services. The deducted amount must be deposited with the government and the supplier can claim it as credit in their electronic cash ledger.
The key difference from income tax TDS: GST TDS is deducted on the gross value including GST, not just the taxable value. This catches many businesses off guard.
Official Reference: Section 51 of the CGST Act 2017 — TDS under GST. The deductor must deduct 1% CGST + 1% SGST (or 2% IGST) from the payment made to the supplier if the total value of supply exceeds ₹2.5 lakh (₹1 lakh for special category states).
📍 Real Example — Government Contractor in Connaught Place
A CP-based contractor wins a ₹5 lakh supply contract with MCD Delhi. Since MCD is a government department, it must deduct GST TDS at 2% (1% CGST + 1% SGST) on the total contract value including GST. So on a ₹5.9 lakh bill (₹5 lakh + 18% GST = ₹5.9 lakh), MCD deducts ₹11,800 as GST TDS and pays the contractor ₹5,78,200. The contractor can claim this ₹11,800 as credit in their electronic cash ledger.
💡 Pro Tip from Parul: Always factor in GST TDS when quoting for government contracts. I have seen contractors in Nehru Place and Bhikaji Cama Place underquote because they forgot that 2% will be deducted at source. Your actual cash inflow will be less by the TDS amount, so plan your working capital accordingly.
Who Must Deduct GST TDS
Not everyone is required to deduct GST TDS. Under Section 51(1), only the following categories of persons (called TDS deductors) must deduct:
- Government departments — Central Government, State Government, UT Administration
- Local authorities — Municipal Corporations (like MCD Delhi, NDMC), Panchayats, Cantonment Boards
- Governmental agencies — as notified by the Government on the recommendations of the GST Council
- Societies established under Central/State Act — and other establishments as may be notified
- Authorities/Boards set up by Parliament/State Legislature — having 51% or more government ownership
Important: Private companies, partnerships, and proprietors are NOT required to deduct GST TDS, even on large contracts. This is a major difference from income tax TDS where every business above a threshold must deduct.
Official Reference: Section 51(1) of the CGST Act 2017 read with Notification 33/2017-Central Tax dated 15.09.2017 — List of persons required to deduct TDS under GST.
⚠️ Common Mistake: Many private companies in Okhla and Mayapuri incorrectly deduct GST TDS from their vendors. As a private entity, you are NOT authorized to deduct GST TDS. If you deduct and deposit it, the vendor cannot claim it properly, and you may face legal issues. Only government bodies and notified agencies can deduct GST TDS.
TDS Rates and Thresholds
The GST TDS rates and thresholds are straightforward but must be applied correctly:
| Supply Type | TDS Rate | Threshold |
|---|---|---|
| Intra-state supply | 1% CGST + 1% SGST | ₹2.5 lakh |
| Inter-state supply | 2% IGST | ₹2.5 lakh |
| Special category states | 1% CGST + 1% SGST | ₹1 lakh |
The threshold of ₹2.5 lakh applies to the total value of supply under a single contract. If you have multiple contracts with the same government department, each contract is evaluated separately for the threshold.
📍 Real Example — DDA Contract in Dwarka
A construction firm in Dwarka has three separate contracts with DDA: ₹2 lakh, ₹3 lakh, and ₹1.8 lakh. TDS will be deducted only on the ₹3 lakh contract since it alone exceeds the ₹2.5 lakh threshold. The ₹2 lakh and ₹1.8 lakh contracts are below the threshold individually, so no TDS applies to them. However, if all three were part of a single ₹6.8 lakh contract, TDS would be deducted on the entire amount.
What is GST TCS?
Tax Collected at Source (TCS) under GST is covered under Section 52 of the CGST Act 2017. Unlike TDS which is about deduction by the payer, TCS is about collection by the intermediary — specifically e-commerce operators.
Every e-commerce operator who collects consideration from customers on behalf of suppliers must collect TCS at 1% (0.5% CGST + 0.5% SGST, or 1% IGST) on the net taxable value of supplies made through their platform.
Official Reference: Section 52 of the CGST Act 2017 — TCS under GST. E-commerce operators must collect tax at source at 1% on net taxable supplies. The amount must be deposited within 10 days of the following month.
📍 Real Example — Amazon Seller in Okhla
Rahul sells electronics through Amazon from his Okhla warehouse. His monthly sales through Amazon are ₹8 lakh. Amazon collects TCS at 1% = ₹8,000 per month (₹4,000 CGST + ₹4,000 SGST) from Rahul's sales proceeds. This ₹8,000 is deposited by Amazon to the government and appears in Rahul's electronic cash ledger, which he can use to pay GST liability or claim refund.
Who Must Collect GST TCS
Under Section 52, the following must collect GST TCS:
- E-commerce operators — Amazon, Flipkart, Meesho, Myntra, Zomato, Swiggy, Uber, Ola, and any other platform that facilitates supply between supplier and customer
- Operators who own the platform — Even if the platform is owned by the supplier itself (like a brand selling through its own app)
Key points about TCS collection:
- TCS is collected on the net taxable value — after deducting returns and refunds
- The rate is 1% (0.5% CGST + 0.5% SGST for intra-state, 1% IGST for inter-state)
- TCS must be deposited within 10 days after the end of the month in which collection was made
- E-commerce operators must file GSTR-8 monthly by the 10th of the following month
💡 Pro Tip from Parul: If you are an e-commerce seller in Janakpuri or Gandhi Nagar, check your electronic cash ledger regularly. TCS collected by Amazon or Flipkart should appear there within a few days of deposit. I have seen sellers wait months without checking, then realize they have ₹50,000+ sitting in their cash ledger that could have been used to offset GST liability or claimed as refund.
TDS/TCS Registration Process
Both TDS deductors and TCS collectors must register for GST specifically under these categories. The process is:
- Apply on gst.gov.in — Select TDS or TCS as the reason for registration
- Provide TAN — Tax Deduction Account Number is mandatory for TDS registration
- Upload authorization letter — For government departments, the person applying must be authorized
- Receive GSTIN — With TDS/TCS suffix in the registration certificate
- Start deducting/collecting — From the date of registration
Registration is free of cost and typically processed within 3-7 working days.
Official Reference: Rule 12 of the CGST Rules 2017 — Registration for TDS and TCS. The deductor/collector must register separately for each state/UT from where deductions/collections are made.
Filing TDS/TCS Returns — GSTR-7 & GSTR-8
Filing returns on time is critical. The compliance calendar for TDS/TCS is strict:
| Return | Filed By | Due Date | Content |
|---|---|---|---|
| GSTR-7 | TDS Deductors | 10th of next month | TDS deducted, deposited, supplier-wise details |
| GSTR-8 | TCS Collectors (E-com) | 10th of next month | TCS collected, deposited, supplier-wise details |
⚠️ Common Mistake: Late filing of GSTR-7 or GSTR-8 attracts a fee of ₹100 per day (₹50 CGST + ₹50 SGST) under Section 47, maximum ₹5,000. But the real problem is that the supplier whose TDS/TCS was deducted cannot claim credit until you file the return. I have seen government departments in Delhi delay GSTR-7 by months, causing genuine businesses to lose working capital. If you are a TDS deductor, file on time.
How to Claim TDS/TCS Refund
For suppliers whose TDS or TCS has been deducted, the amount appears in their Electronic Cash Ledger on the GST portal. This credit can be used in two ways:
- Offset against GST liability — Use the TDS/TCS credit to pay your output tax in GSTR-3B. This is the simplest and fastest method.
- Claim refund — If you have no GST liability to offset (e.g., you are under composition scheme or have excess credit), file a refund application under Section 54 on the GST portal.
For refund claims, the process is:
- File FORM GST RFD-01 on the GST portal
- Select "TDS/TCS credit" as the refund type
- The amount is usually auto-populated from your cash ledger
- Track the application using ARN
- Refund is typically processed within 60 days
📍 Real Example — Refund for Vasant Kunj Supplier
Priya runs a consultancy in Vasant Kunj that provides services to Delhi Government. In FY 2025-26, ₹1.8 lakh was deducted as GST TDS from her payments. Since her consultancy is under composition scheme (6% tax), she has minimal regular GST liability. She files a refund application under Section 54 and receives the ₹1.8 lakh in her bank account within 45 days. Without this refund, ₹1.8 lakh of her working capital would have been blocked indefinitely.
Common Mistakes in GST TDS/TCS
In my practice, I see these errors repeatedly. Each one can lead to penalties or blocked working capital:
- Private companies deducting GST TDS: Only government bodies and notified agencies can deduct. Private companies in Noida and Gurgaon sometimes deduct GST TDS thinking it is like income tax TDS — this is illegal.
- Wrong threshold calculation: The ₹2.5 lakh threshold is per contract, not per vendor. I had a client in South Extension whose TDS was incorrectly deducted on three small contracts because the department added them up.
- Not filing GSTR-7/GSTR-8 on time: Late filing blocks credit for the supplier and attracts daily penalty.
- Deducting TDS on exempt supplies: GST TDS is only on taxable supplies. If the contract involves both taxable and exempt supplies, TDS applies only to the taxable portion.
- Not issuing TDS certificate: The deductor must issue FORM GST TDS to the deductee. Without this, the supplier cannot verify the credit in their cash ledger.
⚠️ Common Mistake: The penalty for not deducting TDS when required, or deducting but not depositing with the government, is ₹10,000 or the amount of tax not deducted/deposited, whichever is higher, under Section 122(1)(vii). For a ₹10 lakh contract where 2% TDS (₹20,000) was not deposited, the penalty would be ₹20,000 — plus the TDS amount itself and interest under Section 50 at 18% per annum.
💡 Pro Tip from Parul: If you are a supplier dealing with government departments, always insist on receiving the TDS certificate (FORM GST TDS) promptly. Without the certificate and the corresponding GSTR-7 filing by the deductor, you cannot claim the TDS credit. I advise my clients in Karol Bagh and Connaught Place to include a TDS certificate timeline clause in their government contracts.
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Frequently Asked Questions
Who is required to deduct TDS under GST?
Only government departments, local authorities, government agencies, and notified entities must deduct GST TDS under Section 51. Private companies and individuals are not required to deduct GST TDS, even on large contracts.
What is the TDS rate under GST?
GST TDS rate is 2% — 1% CGST + 1% SGST for intra-state supply, or 2% IGST for inter-state supply. TDS is deducted on the total value including GST if the contract exceeds ₹2.5 lakh (₹1 lakh for special category states).
What is the difference between GST TDS and income tax TDS?
GST TDS is deducted by government bodies on supply contracts at 2% on gross value including GST. Income tax TDS is deducted by all specified persons on various payments at rates specified in the Income Tax Act. They are completely separate — both may apply on the same transaction.
When must e-commerce operators collect TCS?
Under Section 52, every e-commerce operator must collect TCS at 1% on the net taxable value of supplies made through their platform. This applies regardless of the supplier's turnover. TCS must be deposited by the 10th of the following month.
How do I claim TDS/TCS credit in my GST return?
TDS/TCS credit automatically appears in your Electronic Cash Ledger once the deductor/collector files GSTR-7/GSTR-8. You can use this credit to offset your GST liability in GSTR-3B, or claim a refund under Section 54 if you have no liability to offset.
What happens if TDS is deducted but not deposited by the deductor?
If the deductor deducts TDS but does not deposit it, they face penalty under Section 122 and interest under Section 50. The supplier cannot claim the credit until the deductor deposits the amount and files GSTR-7. You should follow up with the deductor immediately.
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