# What Is TDS Under GST (Section 51)? Who Deducts and When

**Category:** GST | **Published:** 2026-06-25 | **Last reviewed:** 2026-06-25 | **Author:** Mrs. Swapna Patel

TDS under GST, governed by Section 51 of the CGST Act, is a 2% deduction that specified buyers, mainly government departments, government agencies, and public-sector undertakings, make from payments to their suppliers. It applies when the value of a taxable supply under a single contract exceeds Rs. 2.5 lakh, calculated on the value excluding GST. The deductor files Form GSTR-7 by the 10th of the next month, and the deducted amount lands in the supplier electronic cash ledger to set off against tax. This GST TDS is entirely separate from income-tax TDS under Sections 194C, 194J, and 194I.

> **Myth:** TDS under GST is the same thing as the TDS your client deducts under the Income Tax Act.
>
> **Fact:** They are two separate systems. [Section 51 of the CGST Act](https://taxguru.in/goods-and-service-tax/section-51-gst-act-deduction-tds-specified-persons.html) is a 2% GST deduction made only by specified government and public-sector buyers, not by ordinary business clients.

## What is TDS under GST?

> **Short answer:** It is a 2% tax deducted at source by specified buyers under [Section 51 of the CGST Act](https://taxguru.in/goods-and-service-tax/section-51-gst-act-deduction-tds-specified-persons.html), taken from the payment due to a supplier and paid to the government on the supplier behalf.

When a notified buyer pays a supplier, it holds back 2% of the taxable value and deposits it as the supplier GST. The supplier then claims that amount back in their electronic cash ledger. It is a collection mechanism, not an extra tax: the supplier eventually gets full credit for it.

## Who has to deduct it?

> **Short answer:** Only specified persons, not ordinary business clients. The list is narrow.

- Central and State Government departments and establishments.
- Local authorities and government agencies.
- Bodies set up by Parliament or a State Legislature, and authorities or societies with at least 51% government equity.
- Notified public-sector undertakings.

## When does the deduction apply?

> **Short answer:** When the taxable value under a single contract exceeds Rs. 2.5 lakh. The rate is 2%, split as 1% CGST plus 1% SGST, or 2% IGST for inter-state supply.

- The Rs. 2.5 lakh threshold is measured on the value excluding GST, not the gross invoice.
- A common error is deducting on the GST-inclusive total. TDS is computed on the taxable value alone.
- No deduction is needed when the supplier and the place of supply are in a different state from the deductor registration in certain cases, so confirm the supply type first.

## How is this different from income-tax TDS?

> **Short answer:** GST TDS under Section 51 is separate from income-tax TDS under [Sections 194C, 194J, and 194-IB](/answers/tds-194c-194j-194ib-guide). Two laws, two deductions, two returns.

- GST TDS is 2% on the taxable value, reported in Form GSTR-7, and credited to your GST cash ledger.
- Income-tax TDS is deducted under the Income Tax Act on professional fees, contracts, or rent, and reflected in your Form 26AS.
- A government contract can attract both at once, so your invoice value and your net receipt can differ on two counts.

**[Generate a GST invoice that shows the taxable value clearly](https://hrareceipt.in/pakka-bill)**

## Primary sources

- [Section 51, Central Goods and Services Tax Act 2017 — deduction of tax at source](https://taxguru.in/goods-and-service-tax/section-51-gst-act-deduction-tds-specified-persons.html) — Who must deduct, the rate, and the Rs. 2.5 lakh contract threshold.
- [Central Goods and Services Tax Act 2017 (full text) — CBIC](https://www.cbic.gov.in/htdocs-cbec/gst/cgst-act) — Statutory basis for the GST TDS mechanism and the specified deductors.
- [Form GSTR-7 (TDS return) — GST portal](https://www.gst.gov.in) — The monthly TDS return deductors file; the credit then reaches the supplier ledger.

## Related

- [Income-tax TDS under Sections 194C, 194J and 194-IB (the other TDS)](https://hrareceipt.in/answers/tds-194c-194j-194ib-guide)
- [Place of supply — CGST+SGST vs IGST on your invoice](https://hrareceipt.in/answers/gst-place-of-supply-cgst-sgst-vs-igst)
- [What is a pakka bill — the GST invoice that counts as valid](https://hrareceipt.in/answers/what-is-a-pakka-bill)

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*Source: [What Is TDS Under GST (Section 51)? Who Deducts and When](https://hrareceipt.in/answers/tds-under-gst-section-51) — HRAReceipt.in*
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