Can a main contractor deduct GST TDS from a sub-contractor?

Not as GST TDS under Section 51, which only specified deductors such as government departments, local authorities and notified agencies may operate. A private main contractor deducting 2% is making a commercial deduction; no GSTR-7 is filed and the sub-contractor cannot claim the amount anywhere.

Is GST TDS deducted on the invoice total or the taxable value?

On the taxable value — the amount before GST. On a bill of ₹10,00,000 plus ₹1,80,000 GST, the 2% is ₹20,000, not ₹23,600.

What is the threshold for GST TDS?

It applies where the total value of supply under a contract exceeds ₹2,50,000, excluding GST.

Should I reduce the GST rate on my invoice to account for the deduction?

No. The rate for works contracts is 18% and an invoice showing less short-pays the tax, attracting interest and penalty, and breaks the buyer's input credit match. Either show the deduction as a line below the invoice total, or reduce the bill amount itself and charge 18% on the lower figure.

How do I claim GST TDS that was deducted from me?

Once the deductor files GSTR-7, the amount appears in your electronic cash ledger and the certificate is available as GSTR-7A. You can use the credit to pay your GST liability. If nothing appears, the deduction was never filed against your GSTIN.

GST TDS on works contracts: who can deduct it, and what happens down a sub-contract chain

8 min read · Last reviewed 7 August 2026

Railway deducts 2% GST TDS from the main contractor. The main contractor deducts 2% from you. You do the work, and the deduction lands on your bill — but when you look for it in your GST portal, it is not there.

That is not a portal problem. It is the difference between a deduction the law provides for and a deduction written into a private arrangement, and understanding it is worth real money on every bill.

What GST TDS actually is

Section 51 of the CGST Act requires certain specified deductors to withhold 2% of the value of a supply and pay it to the government against the supplier's GSTIN. The rate splits as 1% CGST plus 1% SGST for an intra-state supply, or 2% IGST for inter-state.

Three details decide everything that follows.

It is deducted on the taxable value — the amount before GST, not the invoice total.
It applies only where the value of the supply under a contract exceeds ₹2,50,000.
It can only be deducted by a specified deductor: a government department, a local authority, a government agency, or a notified body. Indian Railways is one. A private main contractor is not.

How the deductee gets it back

The deductor files GSTR-7 and issues a certificate in GSTR-7A. The amount appears in the supplier's electronic cash ledger and can be used to pay GST liability. It is not a cost — it is the supplier's own money, held briefly and returned as credit.

That is the key test. If the deduction is filed against your GSTIN, it comes back to you. If it is not, it is simply gone.

The sub-contract chain problem

Now put three parties in a line. Railway pays the main contractor and deducts 2% GST TDS. That amount is filed against the main contractor's GSTIN and lands in the main contractor's cash ledger — the main contractor gets it back.

The main contractor then deducts 2% from the sub-contractor's bill, calling it GST TDS. But a private company is not a specified deductor. No GSTR-7 is filed, nothing reaches the sub-contractor's cash ledger, and there is nowhere to claim it.

Two correct ways to handle it on your invoice

Whatever the commercial arrangement, one thing is not negotiable: do not reduce the GST rate on the invoice. Works contracts attract 18%. An invoice showing 16% short-pays the tax, invites interest and penalty, and leaves the buyer's input credit unable to match your invoice.

There are two proper ways to reflect the cut, and they are not equivalent in cost.

Bill of ₹10,00,000 with a ₹20,000 deduction

Option A — show it as a deduction below the total
  Bill amount                            10,00,000
  GST 18%                                 1,80,000
  Invoice total                          11,80,000
  Less: GST TDS                            -20,000
  Net payable                            11,60,000
  Your GST liability                      1,80,000

Option B — reduce the bill amount instead
  Bill amount                             9,83,051
  GST 18%                                 1,76,949
  Invoice total                          11,60,000
  Your GST liability                      1,76,949

Same cash in hand. Option B pays ₹3,051 less GST.

Option B is cheaper because you stop paying tax on money you never received. Note the figure though: to take ₹20,000 off the total you reduce the bill by ₹16,949, not ₹20,000 — because the GST on the reduction falls away too. Reducing by the full ₹20,000 costs you more than the deduction did.

One condition applies to Option B: your work order or agreement should show the same reduced value, so the invoice and the contract agree.

Do not confuse it with income-tax TDS

Income-tax TDS under Section 194C is a separate deduction — 1% where the payee is an individual or HUF, 2% otherwise — and it does apply between private parties. That one is genuinely recoverable: it appears in your Form 26AS and is set off against your income tax.

It also runs in the other direction. If you sub-let work, deducting 194C TDS from your sub-contractor is your legal duty, not a courtesy you can waive for someone you know well. Failing to deduct can lead to 30% of that expense being disallowed under Section 40(a)(ia) — on a ₹9,00,000 payment, ₹2,70,000 added to your taxable income to avoid ₹9,000 of paperwork. Your sub-contractor loses nothing by it; they claim it back.

Common questions

Can a main contractor deduct GST TDS from a sub-contractor?: Not as GST TDS under Section 51, which only specified deductors such as government departments, local authorities and notified agencies may operate. A private main contractor deducting 2% is making a commercial deduction; no GSTR-7 is filed and the sub-contractor cannot claim the amount anywhere.
Is GST TDS deducted on the invoice total or the taxable value?: On the taxable value — the amount before GST. On a bill of ₹10,00,000 plus ₹1,80,000 GST, the 2% is ₹20,000, not ₹23,600.
What is the threshold for GST TDS?: It applies where the total value of supply under a contract exceeds ₹2,50,000, excluding GST.
Should I reduce the GST rate on my invoice to account for the deduction?: No. The rate for works contracts is 18% and an invoice showing less short-pays the tax, attracting interest and penalty, and breaks the buyer's input credit match. Either show the deduction as a line below the invoice total, or reduce the bill amount itself and charge 18% on the lower figure.
How do I claim GST TDS that was deducted from me?: Once the deductor files GSTR-7, the amount appears in your electronic cash ledger and the certificate is available as GSTR-7A. You can use the credit to pay your GST liability. If nothing appears, the deduction was never filed against your GSTIN.

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