GSTR-7 Filing Guide: GST TDS Return for Deductors India

GSTR-7 Explained: The GST TDS Return Every Deductor Must File Under Section 51

What is GSTR-7 and who files it? GSTR-7 is the monthly GST return filed by a deductor who withholds 2 percent tax at source under Section 51 CGST Act on payments to a supplier, where the contract value exceeds Rs 2,50,000 excluding GST. It reports the TDS deducted and deposited, and is due by the 10th of the following month.

Most GST content is written for suppliers: how to report sales in GSTR-1, how to reconcile input tax credit, how to settle liability in GSTR-3B. GSTR-7 sits on the other side of the transaction. It is filed by the party making the payment, not the party raising the invoice. If you run the accounts wing of a government department, a public sector undertaking, or a notified agency, GSTR-7 is your monthly obligation, and getting it wrong exposes both you and your suppliers to friction.

This guide walks through who must deduct GST TDS, how the 2 percent rate and the Rs 2,50,000 threshold work, the intra-state versus inter-state rule that decides when deduction is skipped, the step-by-step filing of GSTR-7 on the portal, the GSTR-7A certificate, and exactly how the supplier recovers the deducted amount. For the supplier-side returns, see our GST return terms glossary, which maps every GSTR form to who files it.

Looking for expert help with GST TDS compliance and GSTR-7 filing for deductors? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant end-to-end: filings, notices, and advisory, all in one place.

What is GST TDS Under Section 51?

Tax Deducted at Source under GST is a mechanism where the recipient of a supply withholds a portion of the payment due to the supplier and deposits it directly with the government. It is not an additional tax. It is an advance collection against the supplier's own GST liability, which the supplier later recovers as a credit.

The legal basis is Section 51 of the CGST Act, 2017, read with the corresponding provisions of the respective State GST Acts and the IGST Act. The government introduced GST TDS to widen the tax net around large contracts awarded by public bodies, where the payment trail is documented and the risk of supplier non-compliance is high. By capturing 2 percent at the payment stage, the government creates a paper trail that reconciles the supplier's reported turnover against the value of contracts they actually executed.

The important distinction: GST TDS is separate from Income Tax TDS. A single payment to a contractor can attract both. Income Tax TDS under Section 194C of the Income-tax Act is deducted on the invoice value under a different law and deposited with a different challan. GST TDS under Section 51 is deducted on the taxable value excluding GST and reported in GSTR-7. Do not conflate the two returns or the two challans.

Who Must Deduct GST TDS?

The obligation to deduct falls on a defined set of recipients. A private business buying from another private business does not deduct GST TDS, no matter how large the contract. The deductor must belong to one of the notified categories:

• A department or establishment of the Central Government or a State Government. This includes ministries, directorates, and attached offices.
• Local authorities. Municipal corporations, panchayats, and similar bodies.
• Governmental agencies.
• Notified persons under Section 51(1)(d). Through notifications, the government extended the obligation to: authorities, boards, or bodies set up by Parliament, a State Legislature, or a government with 51 percent or more government participation by way of equity or control; societies established by the Central or State Government or a local authority and registered under the Societies Registration Act, 1860; and public sector undertakings (PSUs).

If your organisation is a PSU, a government-controlled society, or a statutory board, you are almost certainly a notified deductor. Registration as a GST TDS deductor is separate from a normal GST registration. You apply in Form GST REG-07 and receive a GSTIN that identifies you as a deductor, even if you have no output supplies of your own.

The Rs 2,50,000 Threshold

Deduction is not triggered on every payment. It applies only where the total value of taxable supply under a contract exceeds Rs 2,50,000, excluding GST. Read the wording carefully:

• The threshold is tested per contract, on the total taxable value, not per invoice or per payment. Splitting a single Rs 4,00,000 contract into two invoices of Rs 2,00,000 each does not escape TDS, because the contract value governs.
• The Rs 2,50,000 is measured excluding CGST, SGST, IGST, and cess. A contract with a taxable value of exactly Rs 2,50,000 does not cross the threshold; it must exceed it.
• Exempt supplies within a contract are excluded when computing the Rs 2,50,000 taxable value.

The 2 Percent Rate and When TDS Is Not Deducted

The rate of GST TDS is a flat 2 percent of the value of supply, split by the nature of the supply:

The 2 percent is always computed on the value of the supply excluding GST. This is the single most common error: deductors mistakenly apply 2 percent to the gross invoice including GST, over-deducting and creating reconciliation mismatches for the supplier.

The Intra-State Rule: When You Do Not Deduct

Section 51 carries a proviso that removes the deduction obligation in one specific situation. No TDS is deducted when the location of the supplier and the place of supply are in a state or union territory different from the state of registration of the deductor (the recipient).

The logic is mechanical. GST TDS credit is transferred to the supplier's electronic cash ledger through the deductor's state registration. When both the supplier's location and the place of supply are in State B, but the deductor is registered in State A, the transaction would be an inter-state supply from the supplier's side, yet the deductor cannot route CGST/SGST credit into a state where the supplier is not aligned. Rather than force a broken credit flow, the law simply exempts the deduction.

A practical way to read it: if the supplier is registered in the same state as the place of supply, and that state differs from the deductor's registration state, skip the deduction. In all other cases, where deduction is possible, deduct at 2 percent.

GSTR-7: The Monthly Deductor Return

GSTR-7 is the return through which the deductor reports every deduction made in a month and confirms that the tax has been deposited. It is filed monthly, and unlike some supplier returns, there is no quarterly option for deductors.

A crucial operational point: filing and payment are linked. The deducted tax must sit in the electronic cash ledger and be offset against the liability declared in GSTR-7 before the return can be submitted. You cannot file GSTR-7 and pay later.

Step-by-Step: Filing GSTR-7 on the GST Portal

The process runs entirely on the GST portal. Here is the sequence a deductor's accounts team follows every month:

1. Log in at the GST portal with the deductor GSTIN and password. Navigate to Services, then Returns, then Returns Dashboard, and select the financial year and the return period (the month of deduction).
2. Open GSTR-7 and select Prepare Online.
3. Table 3, Details of the tax deducted at source. Enter, for each deductee, the deductee's GSTIN, the total taxable amount (value excluding GST), and the amount of TDS bifurcated into integrated (IGST), central (CGST), and state/UT (SGST) tax. The portal computes the totals.
4. Table 4, Amendments to details of TDS in respect of any earlier tax period. Use this to correct a deductee GSTIN or a TDS amount reported in an earlier month. Amendments here feed a revised GSTR-7A to the affected deductee.
5. Proceed to payment. The system generates the liability. Pay the deducted tax by creating a challan in Form GST PMT-06 and crediting the electronic cash ledger, then offset the GSTR-7 liability against the cash ledger balance. TDS liability cannot be paid from input tax credit; it must be paid in cash.
6. File the return with DSC or EVC. Government deductors and companies file using a Digital Signature Certificate (DSC). Others may file using Electronic Verification Code (EVC) sent to the authorised signatory's registered mobile and email. On successful filing, an ARN is generated.

Once filed, the portal populates each deductee's TDS/TCS credit ledger and auto-generates the GSTR-7A certificate. There is no separate step to issue certificates.

GSTR-7A: The TDS Certificate

GSTR-7A is the TDS certificate. It is auto-generated on the portal the moment GSTR-7 is filed, based on the figures the deductor reported in Table 3. Neither party keys it in manually.

The certificate shows the deductor's and deductee's details, the contract value, the taxable value on which TDS was deducted, and the amount of tax deducted, split into CGST, SGST, and IGST. The deductee downloads it from the portal as documentary evidence. Because it is system-generated from the filed return, GSTR-7A always matches what appears in the deductee's cash ledger, which is why reconciliation is straightforward when both figures come from the same source.

How the Deductee Claims the Credit

This is where the deducted money comes back to the supplier. The flow is deliberate and requires an action from the deductee:

1. When the deductor files GSTR-7, the deducted amount appears in the deductee's TDS and TCS credit received table on the portal.
2. The deductee accepts or rejects each entry. Accepting confirms the deduction is correct.
3. On acceptance, the amount is credited to the deductee's electronic cash ledger (not the credit ledger, because it represents tax already paid in cash on their behalf).
4. The deductee then uses this cash-ledger balance to pay output GST liability in GSTR-3B, or claims a refund of any unutilised TDS credit.

Because the credit lands in the cash ledger, it behaves like money the supplier has already deposited with the government. It reduces the cash the supplier needs to bring to settle the next month's liability. Suppliers who forget to accept the entries leave their own money stranded, so the acceptance step should be part of every deductee's monthly close. For how this liability is finally discharged on the supplier side, see our GSTR-1 outward supplies filing guide.

Worked Example: A Rs 5,00,000 Contract

Consider a State Government department (the deductor, registered in Telangana) that awards a works contract to a supplier also registered in Telangana. The contract's taxable value is Rs 5,00,000, and GST applies at 18 percent. This is an intra-state supply.

Step 1: Test the threshold. Contract taxable value = Rs 5,00,000, which exceeds Rs 2,50,000. TDS is required.

Step 2: Compute the GST on the invoice. GST at 18% on Rs 5,00,000 = Rs 90,000 (Rs 45,000 CGST + Rs 45,000 SGST). Total invoice value = Rs 5,00,000 + Rs 90,000 = Rs 5,90,000.

Step 3: Compute the TDS at 2 percent on the value excluding GST. TDS = 2% of Rs 5,00,000 = Rs 10,000, split as Rs 5,000 CGST + Rs 5,000 SGST. Note the base is Rs 5,00,000, not Rs 5,90,000. TDS is never charged on the GST component.

Step 4: Payment to the supplier. The department pays: Rs 5,90,000 (invoice) minus Rs 10,000 (TDS withheld) = Rs 5,80,000 to the supplier.

Step 5: Deposit and reporting. The department deposits Rs 10,000 with the government, reports it in Table 3 of GSTR-7 against the supplier's GSTIN, and files by the 10th of the following month. GSTR-7A is auto-generated.

Step 6: Credit to the supplier. Rs 10,000 appears in the supplier's TDS credit table. On acceptance, Rs 10,000 (Rs 5,000 CGST + Rs 5,000 SGST) is credited to the supplier's electronic cash ledger. The supplier collects the full Rs 90,000 GST from the department across payment and cash-ledger credit, and uses the Rs 10,000 to settle output GST liability in GSTR-3B. The supplier is not out of pocket; the deduction is purely a timing and traceability mechanism.

Late Fee, Interest, and the Cost of Non-Deduction

Three distinct consequences flow from getting GSTR-7 wrong. Understanding each keeps you compliant and reduces exposure to penalties.

Late fee for filing GSTR-7 beyond the 10th runs at Rs 200 per day (Rs 100 under CGST plus Rs 100 under SGST), subject to a total cap of Rs 5,000.

Interest at 18 percent per annum applies where the deductor deducted the tax but deposited it late. It runs from the day after the due date until the tax actually reaches the government.

Non-deduction is the most serious. If a deductor was obliged to deduct but failed to, the amount is recoverable from the deductor along with interest, and penalty provisions can apply. If tax was deducted but not deposited, the deductor is liable for the tax, interest, and penalty. Because the credit chain to the supplier breaks in these cases, the deductor cannot simply pass the problem downstream. Building a monthly control that flags every contract above Rs 2,50,000 at the payment stage is the single most effective safeguard. For a fuller treatment of how late fees and interest are computed across GST returns, see our guide to GST late fees, interest, and penalties.

Practical Compliance Checklist for Deductors

• Register as a deductor in Form GST REG-07 before making any deduction.
• Flag every contract with a taxable value above Rs 2,50,000, excluding GST, at the award stage.
• Apply the intra-state rule: skip deduction where the supplier's location and place of supply are in a state different from your registration state.
• Deduct 2 percent on the taxable value only, never on the GST-inclusive amount.
• Deposit the deducted tax in cash (not from credit) and file GSTR-7 by the 10th.
• Confirm GSTR-7A generated correctly for each deductee, and resolve mismatches through Table 4 amendments.
• Reconcile the deducted, deposited, and reported figures monthly so suppliers can accept their credit without dispute.

GSTR-7 is a low-complexity return with high consequence attached. The figures are small relative to the contract, but the obligation is statutory, the deadline is fixed at the 10th, and the supplier's cash flow depends on your accuracy. Treat it as a fixed monthly discipline rather than an afterthought, and both sides of the transaction stay clean.

Sources: Section 51 of the CGST Act, 2017 (Tax Deducted at Source) and its proviso; Section 47 and Section 50 of the CGST Act; Rule 66 of the CGST Rules, 2017; Form GST REG-07, GSTR-7, and GSTR-7A; CBIC notifications notifying deductors under Section 51(1)(d); GST portal (www.gst.gov.in). Verify current rates and thresholds against the latest CBIC notifications before filing.