TDS under GST, governed by Section 51 of the CGST Act, is a separate and distinct mechanism from income-tax TDS, despite sharing the same name. It requires specified persons, mainly government departments, local authorities, and certain government-controlled entities, to deduct 2% GST (1% CGST + 1% SGST, or 2% IGST for inter-state supply) when making payments to a supplier for taxable goods or services above ₹2,50,000 under a single contract. The deductor must deposit this amount with the government and issue a TDS certificate to the supplier, who can then claim the deducted amount as a credit in their electronic cash ledger, effectively as an advance against their own GST liability. This is narrower in scope than income-tax TDS since it only applies to specified deductor categories, not to every business making a payment. Suppliers dealing with government contracts or public-sector clients need to track these deductions separately and reconcile them against their GSTR-7-reported credits to ensure the amounts show up correctly in their cash ledger.
Example: A government department pays a Surat-based contractor ₹5,00,000 for a supply contract. The department deducts 2% (₹10,000) as GST TDS, deposits it with the government, and the contractor claims that ₹10,000 back through their electronic cash ledger.
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