TDS under GST: when it applies and how to file GSTR-7

Tax Deducted at Source under GST is one of those provisions that quietly trips up practices handling government contractors and PSU vendors. It is governed by Section 51 of the CGST Act, it runs on a separate registration and return, and it has its own monthly rhythm distinct from regular GSTR-1 and GSTR-3B. If a client of yours supplies to government bodies or notified entities, this is compliance you cannot afford to treat as an afterthought.

When TDS under GST applies

TDS under GST is not the same as TDS under the Income-tax Act, and the two run on parallel tracks. Under Section 51, certain notified recipients must deduct tax at source when paying suppliers for taxable supplies under a contract. The deductors include:

• A department or establishment of the Central or State Government
• Local authorities
• Governmental agencies
• Public sector undertakings, societies and authorities notified by the government (including most PSUs)

The deduction is triggered only where the total value of the taxable supply under a contract exceeds 2,50,000 rupees (excluding GST shown in the invoice). Crucially, that threshold is per contract, not per invoice, so splitting a large contract into smaller bills does not escape the requirement.

A few practical exclusions worth remembering:

• No TDS where the supplier's location and the place of supply differ from the deductor's state for intra-state purposes — broadly, TDS does not apply when the supply is such that the deductor cannot claim the credit in its state.
• The value for the threshold is computed excluding central tax, state tax, integrated tax, cess and the GST component shown separately on the invoice.

How much to deduct and on what

The rate is 2 percent of the payment made or credited to the supplier of taxable goods or services. In practice this means:

• 1 percent CGST plus 1 percent SGST for intra-state supplies, or
• 2 percent IGST for inter-state supplies.

TDS is calculated on the taxable value, never on the GST-inclusive amount. So on a taxable supply of 10,00,000 rupees, the deductor withholds 20,000 rupees and pays the balance to the supplier. The supplier then sees that 20,000 rupees reflected as a credit in their electronic cash ledger once the deductor files GSTR-7 — it is not a cost to the supplier, just a timing and cash-flow matter.

The deductor needs a separate TDS registration (a distinct GSTIN for the deductor role), obtained by selecting the deductor category at registration. This is independent of any regular GST registration the same entity may hold.

Filing GSTR-7 step by step

GSTR-7 is the monthly return through which the deductor reports tax deducted, the deductee-wise breakup and the tax paid. The workflow:

• Deduct TDS at the time of payment or credit to the supplier.
• Deposit the deducted amount to the government by the 10th of the following month.
• File GSTR-7 by the 10th of the following month, reporting GSTIN-wise details of each deductee, the value of supply and the TDS amount.
• On filing, the system generates GSTR-7A, the TDS certificate, which the deductor furnishes to the supplier. The deductee can also download it from the portal.

The deducted amounts auto-populate into the supplier's GSTR-2A/2B and their electronic cash ledger after the return is filed, which the supplier accepts so the credit moves into the cash ledger for use against output liability.

Watch the consequences of slippage. Late filing of GSTR-7 attracts a late fee, and delay in depositing the deducted tax carries interest at 18 percent per annum. Failure to deduct or deposit can expose the deductor to recovery of the amount with interest. Because GSTR-7 is a nil-able return, even a month with no deductions still needs attention if the entity is registered as a deductor — confirm whether a nil return is required rather than assuming silence is safe.

If a client supplies to government or PSU buyers, treat GSTR-7 as a monthly 10th-of-the-month obligation, not an annual clean-up.

How Bizotic One helps

Bizotic One keeps GST filing obligations — including monthly returns like GSTR-7 and the GSTR-7A certificates that follow — alongside the client record, the engagement and the team task that owns each deadline. Instead of tracking deductor clients in a spreadsheet, your practice sees the filing calendar, invoicing and CRM history in one workspace, so a 10th-of-the-month return is flagged before it slips rather than after the interest clock starts.