GST TDS on government contracts: who deducts, when, and how you claim it

If you build for a government department, a local authority or a notified public body, part of the GST on your bill is held back at payment. This is GST TDS, deducted under section 51 of the CGST Act, 2017. It is not a cost to you: it is GST you would have paid anyway, deposited early by the client. But it only works in your favour if the credit reaches your ledger, and that needs some attention on every bill.

Who deducts

Section 51 applies to departments and establishments of the central and state governments, local authorities, governmental agencies, and the persons or categories of persons the government notifies. In practice that covers CPWD and state PWD divisions, municipal corporations, many boards and authorities, and a number of public sector bodies. A private developer does not deduct GST TDS.

Each deductor holds a separate GST registration as a tax deductor. That registration number is what you will see against the credit on the GST portal.

How much, and above what value

Section 51 sets the deduction as a percentage of the payment, split between CGST and SGST, or charged as IGST, and applies above a contract value threshold. The figures most contracts are configured with are 2% (1% CGST plus 1% SGST, or 2% IGST) where the total value of supply under the contract exceeds ₹2.5 lakh. Check the current notification before relying on either number, since rates and thresholds can be changed by notification.

The deduction is worked out on the value of supply excluding the GST shown on the invoice. If a client deducts on the GST-inclusive amount, the deduction is overstated, and you should raise it before the bill is paid.

A worked example

On RA Bill No. 7 for a ward office building, the value of work done this bill is ₹20,84,879. The work order is configured at 2% GST TDS. The deduction is 2% of ₹20,84,879, which is ₹41,697.58, rounded to ₹41,698.

One percent of ₹20,84,879 is ₹20,848.79, which rounds to ₹20,849 per head, and two heads make ₹41,698. Where the place of supply makes the supply inter-state, the same ₹41,698 is deducted as IGST in one line.

When it is deducted and deposited

The client deducts at the time of payment. Certification does not trigger it. If RA Bill No. 7 is certified in November and paid in December, the deduction belongs to December. The deductor deposits it and files a monthly TDS return (GSTR-7), from which a TDS certificate (GSTR-7A) is generated for you.

This timing is the first source of mismatches. Your bill register shows the deduction in the month of the bill; the portal shows it in the month of payment. Reconcile by payment date.

How you claim the credit

Once the deductor files the return, the amount appears on the GST portal under credits received. You accept or reject each entry. Accepted amounts reach your electronic cash ledger, from where they pay your GST liability like any cash deposit. An entry you reject goes back to the deductor to correct.

Do not accept an entry blindly. Check the deductor, the amount and the tax head against your bill. Accepting a wrong amount makes later correction harder.

Where it goes wrong

• Deduction on the GST-inclusive amount. The deduction is overstated, and the extra sits in your cash ledger, away from your bank account.
• Wrong tax head. IGST deducted where CGST and SGST were due, or the reverse, so the credit does not match how you paid tax on the supply.
• Wrong GSTIN. The deduction is reported against another registration of yours, or someone else's, and never appears for you.
• Return not filed. The amount was deducted from your payment but the deductor has not filed the return, so there is nothing to accept.
• Deduction on a contract below the threshold. Raise it with the client and point to the current notification.

What to show on the bill

Show GST TDS as its own line in the recovery schedule, below the value of work done and above net payable, with the basis printed beside it: the rate as configured for the contract and the value it was applied to. Keep it separate from income-tax TDS. The two are deducted under different laws, credited through different portals and reconciled by different people in your accounts team, and one combined line makes both reconciliations harder.

Print your GSTIN and the client's tax deductor registration on the cover letter as well. When a credit goes missing, those two numbers are the first thing the client's accounts office will ask for.

A monthly reconciliation

Once a month, list every payment received from government clients with its GST TDS deduction, and match it to the portal. Three columns are enough: deducted per payment advice, shown on the portal, accepted. Anything in the first column and missing from the second needs a letter to the client's accounts office, with the bill number and payment date.

The GST TDS calculator computes the deduction for a bill at the rate you set, and the recovery schedule template has a column for it.

How Tatha Vastu handles GST TDS

In Tatha Vastu, GST TDS is set once per work order: whether the client deducts, the rate as configured for your contract, and the tax head. Each bill computes it on the value excluding GST. When the payment arrives, the deduction is recorded against the payment date, so the monthly match with the portal is a short list. Filing returns stays with your accountant; Tatha Vastu keeps the figures straight.