Under Section 51 of the CGST Act, specified buyers such as government departments must deduct tax at source from payments to suppliers of taxable goods or services. The deducted amount is credited to the supplier's cash ledger.
Deductors include departments or establishments of the Central or State Government, local authorities, governmental agencies, and other persons or categories notified by the Government, including certain buyers of metal scrap. They must register as TDS deductors.
TDS at 2% (1% CGST plus 1% SGST, or 2% IGST) is deducted from payments where the total value of supply under a contract exceeds Rs. 2.5 lakh. The value excludes the tax shown on the invoice.
The supplier must accept the TDS credit on the portal, after which it goes to the electronic cash ledger and can be used to pay output tax or claimed as refund. The supplier still reports the full supply and pays full GST in GSTR-3B; TDS is not a reduction in tax, only a mode of advance payment. Reconcile TDS credits with invoices, because differences are often raised in scrutiny of government contractors.
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This guide explains the law in general terms as of October 2026. Time limits and requirements can depend on the facts of your case and on the notice you received.
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