GST TDS vs Income Tax TDS: Key Differences You Must Know
TDS, or Tax Deducted at Source, is a common term in the world of taxation. But did you know that India has two major types of TDS — one under the Income Tax Act, and another under the Goods and Services Tax (GST) regime?
While both are meant to ensure tax compliance and prevent tax evasion, TDS under GST and TDS under Income Tax serve different purposes, apply to different entities, and follow separate compliance rules.
If you’re a business, government department, or tax consultant, it’s essential to know when and how each applies — and how to stay compliant with both.
What is TDS under Income Tax?
Under the Income Tax Act, 1961, Tax Deducted at Source (TDS) is a mechanism through which the payer deducts tax at the time of making certain specified payments. These payments include salaries, rent, professional fees, interest, contract payments, commissions, and more. The primary objective of TDS is to collect tax at the source of income generation, ensuring that tax is paid in advance and credited to the recipient’s PAN account. This system aids in reducing tax evasion and provides a steady flow of revenue to the government.
Example:
You hire a consultant and pay them ₹1,00,000 as professional fees.
You must deduct TDS @10% = ₹10,000, and pay ₹90,000.
The deducted ₹10,000 is deposited to the government, and the consultant can claim it in their ITR.
What is TDS under GST?
TDS under GST is governed by Section 51 of the CGST Act. It applies to:
- Government departments
- Local authorities
- Public sector undertakings
- Notified bodies
These entities must deduct 2% TDS on the taxable value (excluding GST) of goods/services if the contract value exceeds ₹2.5 lakh.
Key Differences Between GST TDS and Income Tax TDS
| Aspect | GST TDS | Income Tax TDS |
| Law | Section 51 of CGST Act | Income Tax Act, 1961 |
| Applicability | Govt Depts, Local Authorities, Notified Entities | All specified payments (salary, rent, fees, etc.) |
| Threshold | Contract > ₹2.5 lakh (excluding GST) | Varies by payment type (e.g., ₹30,000 for professional fees) |
| Rate | 2% (1% CGST + 1% SGST or 2% IGST) | 1%–30% depending on nature of payment |
| When to Deduct | At invoice booking or payment (whichever earlier) | At time of payment or credit |
| Return Form | GSTR-7 (monthly) | Various TDS returns like 24Q, 26Q (quarterly) |
| Certificate | GSTR-7A (auto-generated) | Form 16 / Form 16A (manual issuance) |
| Interest on Late Payment | 18% per annum | 1.5% per month or part thereof |
Example to Illustrate the Difference
🔹 Scenario 1: TDS under Income Tax
You hire a marketing consultant for ₹75,000.
You deduct TDS @10% = ₹7,500 and pay ₹67,500.
➡ Deposit ₹7,500 to the income tax department by the 7th of next month.
🔹 Scenario 2: TDS under GST
A government department engages a vendor under a contract of ₹3,00,000 (excluding GST).
They issue an invoice of ₹2,50,000 in April and ₹50,000 in June.
➡ TDS @2% = ₹6,000 on first invoice, ₹1,000 on second invoice.
➡ Must be deposited by 10th of May and July respectively.
Mistakes to Avoid
- Confusing the Two TDS Types:
- Businesses often wrongly apply income tax TDS rules to GST TDS or vice versa. They are completely separate systems.
- Missing Thresholds:
- GST TDS applies per contract exceeding ₹2.5 lakh (excluding GST), not per invoice.
- Income tax TDS thresholds vary by nature of payment.
- Wrong Timing:
- GST TDS: deduct at invoice or payment — whichever is earlier.
- Income Tax TDS: deduct at credit or payment — whichever is earlier.
Compliance Tips for Both Systems
| Compliance Area | GST TDS | Income Tax TDS |
| Deposit Due Date | 10th of next month | 7th of next month |
| Return Filing | GSTR-7 monthly | Form 26Q/24Q quarterly |
| Certificate Due Date | Auto-generated (GSTR-7A) | Within 15 days of return due date |
| Interest on Late Deposit | 18% annually | 1.5% per month |
| Penalty for Non-filing | ₹100 per day (CGST + SGST) | ₹200 per day (max ₹10,000) |
Why Does This Matter to You?
If you’re:
✅ A government contractor — you must track both GST and income tax TDS.
✅ A public sector official — your department needs to deduct and deposit GST TDS timely.
✅ A tax consultant — your clients need guidance to remain compliant on both fronts.
Non-compliance in either case can result in loss of input credit, interest, penalties, and notices from tax authorities.
Final Summary
🔹 TDS under GST applies only to notified entities and contracts over ₹2.5 lakh.
🔹 TDS under Income Tax applies widely across types of payments and industries.
🔹 Different forms, deadlines, and interest rules apply.
🔹 Keep your accounting systems updated to handle both types properly.