For many business owners, "TDS" is a singular term, but in the Indian regulatory landscape, it refers to two distinct obligations under different statutes: the Income-tax Act and the CGST Act. Confusing these can lead to significant compliance errors and interest liabilities. While both mechanisms involve withholding a portion of a payment for the government, they operate under distinct legal frameworks, serve different objectives, and carry unique accounting implications.

 

As we navigate the transition to the Income-tax Act, 2025, understanding these differences is critical for professional compliance.

 

1.     FUNDAMENTAL OBJECTIVES

 

Income Tax TDS: This is a "pay-as-you-earn" mechanism designed to collect tax on income at the point of origin. It ensures a steady flow of revenue to the government and serves as a tool to track the total income of the payee.

GST TDS: Governed by Section 51 of the CGST Act, this serves primarily as a compliance and tracking tool for the supply chain, particularly for high-value contracts involving government entities. (Note: Detailed GST TDS provisions are outside the scope of the Income Tax provided, but practitioners often compare them to IT-TDS during audits).

 

2.     GOVERNING STATUTES AND RECENT CHANGES

 
Income Tax: Currently, we are in a dual-track period where the Income-tax Act, 1961 governs liabilities for periods up to March 31, 2026, while the Income-tax Act, 2025 applies to transactions on or after April 1, 2026. Under the 2025 Act, TDS provisions have been consolidated into simplified tabular formats under Sections 392 and 393.

GST: Remains governed by the CGST Act, 2017.

 

3.     APPLICABILITY AND THRESHOLDS

 
Income Tax: IT-TDS applies broadly to most taxpayers (including individuals and HUFs exceeding certain turnover limits) making payments for salaries, rent, professional fees, or to contractors. Thresholds vary; for instance, payments to contractors generally trigger TDS if a single sum exceeds ₹30,000 or the aggregate exceeds ₹1,00,000.

GST: GST-TDS is more restricted, generally applying only to Government departments, local authorities, or notified agencies when the total value of supply under a contract exceeds ₹2.5 lakhs.

 

4.     TRIGGER FOR DEDUCTION

Income Tax: The obligation to deduct tax arises at the earlier of two events: the credit of the sum to the account of the payee OR the actual payment in cash, cheque, or any other mode.

GST: Deduction is strictly triggered at the time of payment to the supplier.

 

5.     ACCOUNTING AND DEDUCTIBILITY (SECTION 43B)

One of the most critical legal distinctions involves the "allowability" of these taxes as business expenses:

Income Tax TDS: Under Section 43B of the Income-tax Act, any sum payable as Income-tax is explicitly excluded from being allowed as a business deduction. This means the TDS itself is not an expense but a payment of the tax liability of the payee.

GST (including GST TDS): Any tax, duty, cess, or fee (such as GST, sales tax, or excise) is allowed as a deduction in the year it is actually paid to the Government. For income tax purposes, if GST was debited to the Profit & Loss account and paid before the ITR filing due date, it is an eligible deduction.

 

6.     TAX AUDIT REPORTING (FORM 3CD)

Tax auditors must distinguish between these two in the audit report:

Clause 34: Requires detailed reporting on whether the assessee has complied with IT-TDS provisions, including section-wise details of amounts deducted and deposited.

Clause 44: Requires a breakup of the total expenditure of the entity, specifically identifying spending relating to entities registered or not registered under GST. This is used to reconcile expenditure with GST compliance.

 

7.     CONSEQUENCES OF DEFAULT

Income Tax: Failure to deduct or deposit attracts interest at 1% to 1.5% per month. The deductor may be deemed an "assessee-in-default," leading to recovery actions and potential penalties.

GST: Similar interest and penalty provisions apply; however, the credit of GST TDS is claimed by the supplier in their Electronic Cash Ledger to discharge their GST liability.

 

 

SUMMARY TABLE

 

Feature	TDS under Income Tax (ITA 2025)	TDS under GST (CGST 2017)
Section	Sections 392 and 393	Section 51 (CGST Act)
Trigger	Earlier of Credit or Payment	At the time of Payment
Threshold	Varies (e.g., ₹30k/₹1L for contractors)	Contract value > ₹2.5 Lakhs
43B Status	Non-deductible (Income Tax)	Deductible on payment basis
Audit Form	Reported under Clause 34	Impacts Clause 44

 

Practitioner’s Note: Ensure clients understand that paying GST-TDS does not fulfill their IT-TDS obligations. Furthermore, during the transition to the 2025 Act, IT-TDS must reference the new section numbers (e.g., quoting Section 393 instead of 194C) to avoid system validation errors.