What section 51 requires
Section 51 of the CGST Act 2017 requires certain government and public buyers to deduct tax at source from the payment they make to a supplier of taxable goods or services. It is GST collected in advance, not an extra tax: the supplier still charges GST on its invoice and pays it in GSTR-3B, and the amount deducted becomes cash it can use for that payment. The provision has been in force from 1 October 2018.
A contractor working for government therefore sees two different TDS deductions on the same running bill: income-tax TDS under s.393 of the Income-tax Act 2025 [194C], and GST TDS under s.51. They have different bases, different forms and different credits. For the income-tax side see TDS on contractor and professional payments.
Who deducts
| Clause of s.51(1) | Deductor |
|---|---|
| (a) | A department or establishment of the Central Government or a State Government |
| (b) | A local authority |
| (c) | Governmental agencies |
| (d), notified by Notification 50/2018-Central Tax | An authority, board or other body set up by an Act of Parliament or a State Legislature, or established by any government, with 51% or more participation by way of equity or control, to carry out any function; a society established by the Central or State Government or a local authority under the Societies Registration Act 1860; and public sector undertakings |
Deductors register on the GST portal as tax deductors. Supplies between two such persons are outside the deduction under a later notification, so one government department buying from another does not deduct. Private companies, including large contractors who sub-let government work, do not deduct GST TDS from their sub-contractors.
Rate, base and threshold
- Rate: 2% of the payment. On an intra-state supply, 1% under the CGST Act and 1% under the State or UT GST Act. On an inter-state supply, 2% under the IGST Act.
- Base excludes tax. The Explanation to s.51(1) says the value of supply is the amount excluding the CGST, SGST or UTGST, IGST and cess shown in the invoice.
- Threshold: ₹2.5 lakh per contract. No deduction is made where the total value of supply under a contract does not exceed ₹2,50,000. The test is the contract value, not the bill.
- No deduction across states in one case. The second proviso to s.51(1) says no deduction is made where the location of the supplier and the place of supply are in a State or UT different from the deductor's State or UT of registration.
The GST rate on the works contract itself is a separate question; see GST on works contracts and the works contract GST calculator.
The deductor's returns
- Deduct when making the payment to the supplier.
- Deposit and file GSTR-7 by the 10th of the following month (s.39(3) and rule 66 of the CGST Rules), showing each supplier's GSTIN, the value and the tax deducted.
- The TDS certificate is made available to the supplier on the portal on the basis of GSTR-7 (commonly referred to as GSTR-7A).
- If the deductor fails to pay the deducted amount, it pays interest under s.50 in addition to the amount; a late GSTR-7 attracts a late fee under s.47, which Notification 23/2024-Central Tax (from 1 November 2024) limits to ₹25 a day and ₹1,000 in all under CGST (the same again under SGST), and waives when no tax was deducted in the month. The GST late fee and interest calculator works out the standard amounts.
Claiming the credit as the supplier
- After the deductor files GSTR-7, the entries appear in the supplier's TDS and TCS credit received section on the GST portal.
- The supplier accepts the entries (or rejects any that are wrong, which sends them back to the deductor to amend).
- Accepted amounts are credited to the supplier's electronic cash ledger, not the credit ledger. They can be used to pay output tax, interest, late fee or penalty, like any cash deposit.
- A surplus that cannot be used can be claimed as a refund of excess balance in the cash ledger.
Accept the entries before filing GSTR-3B for the month so the cash is available; reconcile each entry to the RA bill on which it was deducted.
Worked example
Round illustrative numbers. ABC Infra Private Limited, registered in Maharashtra, executes a ₹1.2 crore road contract for a Maharashtra state department. RA bill 3 has a taxable value of ₹10,00,000, with GST charged separately on the invoice at the applicable rate.
| Deduction on RA bill 3 | Base (₹) | Rate | Amount (₹) | Where the credit goes |
|---|---|---|---|---|
| GST TDS, CGST | 10,00,000 | 1% | 10,000 | Electronic cash ledger, after accepting GSTR-7 entry |
| GST TDS, SGST | 10,00,000 | 1% | 10,000 | Electronic cash ledger |
| Income-tax TDS, s.393 [194C], company | 10,00,000 | 2% | 20,000 | Form 131 [16A], set off in the income-tax return |
If ABC Infra (Maharashtra) built the road in Karnataka for a department registered in Karnataka, the supply would be inter-state and the GST TDS ₹20,000 IGST. If instead the site were in Maharashtra and the department registered only in Karnataka, the supplier and the place of supply would both be outside the deductor's state, and the second proviso means no GST TDS. Retention, security deposit, mobilisation advance recovery and labour cess also come off the bill; the RA bill deductions calculator puts them together, and retention money and security deposit explains when those come back.
Monthly checklist for a government contractor
- List of RA bills paid in the month by each deductor, with GST TDS shown on the payment advice.
- GST portal: accept matching entries in TDS credit received before GSTR-3B; follow up any missing GSTR-7.
- Cash ledger used for output tax; refund claimed only for a genuine surplus.
- Income-tax TDS matched separately against Form 26AS or the annual information statement.
- Contract value checked against the ₹2.5 lakh test for small work orders.
K-Finance handles GST return preparation workflows and TDS tracking; RA bills approved in K-Projects reach its review queue with their deductions. Confirm the treatment of any particular contract with your CA and the deductor's accounts office.
Common questions
What is the GST TDS rate?
2% of the payment made to the supplier: 1% CGST and 1% SGST (or UTGST) on an intra-state supply, or 2% IGST on an inter-state supply, under section 51 of the CGST Act and the corresponding IGST provision.
Is GST TDS deducted on the GST amount?
No. The Explanation to section 51(1) says the value of supply for deduction is the amount excluding the central, state, union territory and integrated tax and cess shown in the invoice.
When does the ₹2.5 lakh threshold apply?
Deduction is made where the total value of supply under a contract exceeds ₹2,50,000, excluding taxes. The test is on the contract value, not on each running bill, so every RA bill under a ₹40 lakh contract suffers TDS even if a single bill is small.
How does a contractor use the GST TDS credit?
The deductor files GSTR-7 by the 10th of the following month. The supplier accepts the entry on the GST portal, after which the amount is credited to its electronic cash ledger and can be used to pay output tax, interest or other liabilities, or claimed as a refund if surplus.
Do public sector undertakings deduct GST TDS?
Yes. Notification 50/2018-Central Tax brings in bodies set up by Parliament or a State Legislature or by a government with 51% or more government equity or control, societies set up by the Central or State Government or a local authority, and public sector undertakings, along with government departments, local authorities and government agencies, from 1 October 2018.
Sources
- CBIC GST: Central Goods and Services Tax Act 2017 (s.51, s.39(3), s.47, s.50)
- CBIC tax information portal: CGST Rules (rule 66) and Notification 50/2018-Central Tax dated 13 September 2018
- GST portal: GSTR-7 and TDS and TCS credit received
- Notification 23/2024-Central Tax dated 8 October 2024 (GSTR-7 late fee)