TDS and TCS Under GST: Who Deducts, Who Collects

TDS under GST is a deduction made by the buyer under Section 51 of the CGST Act — and it applies to a narrow, notified set of buyers, mostly government departments, local authorities and certain public sector bodies, when the contract value crosses ₹2,50,000. TCS under GST is a different animal entirely: a collection made by an e-commerce operator under Section 52 on the money it passes through to sellers on its platform. The names rhyme, the forms sit next to each other on the portal, and neither has anything to do with income-tax TDS. This post keeps the three apart.

Two mechanisms, two different sections

Both provisions do the same broad thing — take a slice of tax at the point money changes hands, rather than waiting for the supplier to pay it — but they were written for completely different problems.

Section 51 exists because government spending is enormous, contract-based, and historically prone to suppliers who invoice with tax and then do not remit it. Making the paying department withhold a fixed percentage gives the exchequer a foot in the door and creates a paper trail that ties a specific payment to a specific GSTIN. Section 52 exists because marketplaces sit between thousands of small sellers and their customers, hold the money briefly, and are therefore the single most efficient place to catch tax on platform-mediated sales.

The practical consequence: if you are a private company buying from a private vendor, neither applies to you. If you sell to a government department under a large contract, Section 51 applies. If you sell through a marketplace that collects your customers' money for you, Section 52 applies. It is entirely possible to be on the receiving end of both in the same month.

Section 51: who has to deduct TDS under GST

Section 51 does not apply to businesses generally. It applies to a defined list of recipients:

• A department or establishment of the Central Government or a State Government.
• Local authorities.
• Governmental agencies.
• Such other persons or categories of persons as the Government notifies — which is how public sector undertakings, and bodies set up by an Act of Parliament or a State Legislature or established by government with majority participation by way of equity or control, were brought in.

The notified categories have been amended more than once since the provision was brought into force, and the fourth limb above is deliberately open-ended. If you are trying to work out whether a particular authority, board, society or PSU is a deductor today, read the current notification on the CBIC GST portal rather than a list in a blog post — including this one.

A deductor must register under GST specifically as a TDS deductor. This is a compulsory registration that does not depend on turnover: a department with no taxable outward supply at all still registers if it is required to deduct. Registration in this capacity can be obtained on the strength of a TAN rather than a PAN, which is one of the few places where the two tax systems touch. The result is a GST registration of a distinct type — worth knowing if you are validating counterparty identifiers programmatically and see a registration that does not behave like an ordinary taxpayer's. Our breakdown of the GSTIN format covers how the 15 characters are constructed.

The contract threshold and the rate split

TDS is required where the total value of supply under a contract exceeds ₹2,50,000, excluding CGST, SGST/UTGST, IGST and cess as shown on the invoice. Two details matter here and are routinely got wrong:

1. The threshold is tested on the contract, not the invoice. A ₹9 lakh contract billed in six instalments of ₹1.5 lakh is above the threshold. Every payment under it is subject to deduction, even though no single invoice crosses ₹2.5 lakh on its own.
2. The base excludes tax. You deduct on the taxable value, not on the invoice total. A ₹4,00,000 supply at 18% has an invoice total of ₹4,72,000, but the deduction is computed on ₹4,00,000.

The rate is 1% for an intra-state supply, charged as 1% CGST plus 1% SGST/UTGST, and 2% IGST for an inter-state supply. Either way the supplier sees 2% of taxable value withheld; the split just mirrors whichever tax heads the underlying supply attracted. On the ₹4,00,000 example above, that is ₹8,000 — ₹4,000 CGST and ₹4,000 SGST if intra-state, or ₹8,000 IGST if not.

Deduction also presupposes a taxable supply from a registered supplier. Exempt supplies and supplies from unregistered persons are outside it — there is no GSTIN for the credit to attach to. Where the supply is covered by the reverse charge mechanism, the recipient is already paying the tax directly and there is nothing to withhold from the supplier.

GSTR-7, GSTR-7A and the deductor's month

A deductor's monthly cycle is short and mechanical. The tax deducted during a month must be paid to the government and reported in Form GSTR-7 by the 10th of the following month. GSTR-7 is invoice-and-GSTIN level: it names each deductee, the value on which deduction was made, and the amount deducted under each head. That granularity is the whole point — it is what allows the amount to be matched to the right supplier's ledger.

Form GSTR-7A is the TDS certificate. It is not typed up separately; it is generated from the filed GSTR-7 and made available to the deductee on the portal, showing the contract value, the rate, the amount deducted and the amount paid. If a supplier asks you for a GST TDS certificate, GSTR-7A is what they mean, and the practical answer is usually "file GSTR-7 and it will appear".

Late filing of GSTR-7 attracts a per-day late fee subject to a cap, and interest runs on tax deducted but not deposited. Both the late fee cap and any concessional rates have been revised by notification more than once, so check the current position on cbic-gst.gov.in before calculating an exposure. Note also that GSTR-7 is a nil-able return in practice but a required one — the due date does not go away in a month with no deductions. If you are mapping this against everything else on the calendar, our GST return due dates guide puts the 10th in context with the GSTR-1 and GSTR-3B cycle.

Section 52: who has to collect TCS

Section 52 applies to an electronic commerce operator — a person who owns, operates or manages a digital platform for the supply of goods or services — but only where it collects the consideration on behalf of the suppliers selling through it. That qualifier does real work. A listings site that introduces a buyer to a seller who then invoices and collects directly is not collecting consideration, and TCS does not bite. A marketplace that takes the customer's card payment and later remits to the seller is.

The important exclusion is Section 9(5). For certain notified categories of services supplied through an e-commerce platform — passenger transport, accommodation in specified circumstances, housekeeping and restaurant services among them — the operator is made liable to pay the tax as if it were the supplier itself. Where the operator is the deemed supplier, there is nobody to collect from, so no TCS arises on those supplies. Operators that run both kinds of business have to separate the two streams before computing anything.

Suppliers selling through an operator are generally required to register under GST regardless of turnover, though a route has since been opened for small suppliers of goods making intra-state supplies through a platform to do so without registration where conditions are met. If you are on either side of that arrangement, confirm the conditions against the current notification rather than assuming — the relief is narrow and conditional.

Net value of taxable supplies and GSTR-8

TCS is not computed on gross sales. It is computed on the net value of taxable supplies: the aggregate value of taxable supplies of goods and services made through the operator by all registered persons during the month — excluding Section 9(5) services — minus the aggregate value of taxable supplies returned to the suppliers during that same month. Returns are netted at the month level, not matched invoice-to-invoice, which is why a heavy-returns category can produce a much smaller TCS figure than the headline GMV suggests.

The statute sets a ceiling of 1% on the collection rate, with the operative rate fixed by notification and split across heads the same way TDS is — half under CGST and half under SGST/UTGST for an intra-state supply, or the full rate under IGST for an inter-state one. The notified rate was reduced part-way through the regime, so confirm the current figure on cbic-gst.gov.in before you hardcode it into a settlement engine.

The operator files Form GSTR-8 by the 10th of the following month, reporting supplier-wise details of supplies made through the platform, supplies returned, and tax collected. There is no GSTR-7A equivalent for TCS — the GSTR-8 data itself is what reaches the supplier. The Act also contemplates an annual statement from operators; whether it is available for filing in a given year is worth verifying on the portal rather than assuming from the statutory text.

How the deductee gets the money back

This is where both mechanisms converge, and where the most common misconception lives. Money deducted under Section 51 or collected under Section 52 is not input tax credit. It does not go to your electronic credit ledger and it is not subject to the ITC eligibility conditions at all. It is tax already paid on your behalf, and it goes to your electronic cash ledger.

The flow works like this:

1. The deductor files GSTR-7, or the operator files GSTR-8, naming your GSTIN and the amount.
2. Those amounts become visible to you on the GST portal, where you accept or reject them. Rejected entries go back to the counterparty to amend.
3. Accepted amounts credit your electronic cash ledger under the relevant head — CGST, SGST/UTGST or IGST.
4. You use that balance to discharge liability when you file GSTR-3B, or you claim a refund of the unused balance.

Two consequences follow. First, the credit is head-specific: IGST TDS sits in the IGST cash balance, and the usual cross-utilisation rules apply when you set it against liability. Second, and more painfully, if the deductor never files GSTR-7, the money is gone from your bank account but has not arrived in your ledger. Chasing that is a relationship problem, not a portal problem — which is why suppliers dealing with government buyers tend to reconcile cash-ledger credits against payment advices every single month rather than at year end.

On the other side of the desk, if you are the one deducting, the GSTIN you report against has to be right and active. A deduction reported against a cancelled or mistyped GSTIN does not reach anybody, and you will hear about it. Validating a vendor's GSTIN before you set them up for payment — and re-checking it periodically — is the cheap version of that problem; our notes on vendor GST verification in accounts payable cover how teams usually wire that into an AP workflow.

How this differs from income-tax TDS

The single biggest source of confusion in this area is that "TDS" already meant something before GST existed. Income-tax TDS under the Income-tax Act, 1961 is a completely separate obligation with its own thresholds, rates, sections and machinery. They coexist. On a large invoice from a government department to a contractor, it is normal for income-tax TDS and GST TDS both to be deducted, computed on the same underlying value but reported to two different systems.

The practical rule for anyone reconciling: never try to tie a GST TDS figure to Form 26AS, and never expect a GSTR-7A amount to reduce an advance-tax computation. They are parallel tracks that happen to share an acronym. Keep two schedules, reconcile each against its own portal, and the whole thing stops being confusing.

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