In any business or corporate environment, understanding taxation is not just the job of the finance team — it’s essential for admin, procurement, and operational teams too. Two crucial components of taxation in business purchases are TDS (Tax Deducted at Source) and GST (Goods and Services Tax). These two impact invoices, vendor payments, budgeting, and compliance.
Whether you're part of the purchase department, an administrator, or a facility manager, having a good grip on TDS and GST will help you avoid costly errors, ensure legal compliance, and streamline vendor dealings.
What is TDS in Purchase?
TDS (Tax Deducted at Source) is a tax that a buyer deducts while making a payment to a seller and deposits it with the government on behalf of the seller.
📌 When is TDS applicable in purchases?
TDS is applicable when:
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You make a payment for services or contracts (not goods).
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The total payment exceeds the threshold limit defined under the Income Tax Act.
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The transaction falls under a TDS section like 194C (contractor), 194H (commission), or 194J (professional services).
✅ Example:
Suppose you hired a vendor for office renovation worth ₹1,50,000. This falls under Section 194C.
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TDS Rate under 194C for individual vendor: 1%
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TDS to be deducted: ₹1,500
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You pay the vendor ₹1,48,500 and deposit ₹1,500 to the Income Tax Department with their PAN details.
This ensures the government gets a share upfront, and the vendor adjusts this while filing taxes.
What is GST in Purchase?
GST (Goods and Services Tax) is a unified indirect tax applicable to the supply of goods and services in India. Every purchase invoice may include CGST, SGST, or IGST, depending on whether the transaction is intra-state or inter-state.
📌 When is GST applicable in purchases?
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When you purchase goods or services from a registered GST vendor.
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When the invoice value is above the GST threshold (currently ₹500 in most cases).
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When the item/service is not exempt under GST law.
✅ Types of GST:
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CGST – Central GST
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SGST – State GST
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IGST – Integrated GST (for inter-state transactions)
✅ Example:
You buy office chairs worth ₹50,000 from a Delhi-based vendor while your office is in the same state.
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GST Rate: 18%
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CGST = ₹4,500, SGST = ₹4,500
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Total Invoice = ₹59,000
This GST can later be claimed as ITC (Input Tax Credit) if your business is GST registered.
TDS vs GST – Key Differences
| Point | TDS | GST |
|---|---|---|
| Type of Tax | Direct | Indirect |
| Levied By | Income Tax Department | GST Council (Govt. of India) |
| Deducted By | Buyer | Collected by Seller |
| On What? | Services/Contract Payments | Sale of Goods/Services |
| Paid To | Income Tax Dept | GST Portal |
| Input Credit | No | Yes (ITC) |
| Compliance Form | Form 26Q, 16A | GSTR-1, GSTR-3B, etc. |
How TDS & GST Work Together in a Purchase
When you purchase a service like security services or AMC, both TDS and GST may apply.
✅ Example Scenario:
You hire an IT vendor for annual maintenance services.
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Invoice Amount: ₹1,00,000
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GST @18% = ₹18,000
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Total: ₹1,18,000
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TDS under Section 194C = 1% of ₹1,00,000 = ₹1,000
💰 Payment to Vendor:
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₹1,18,000 – ₹1,000 = ₹1,17,000
You pay ₹1,17,000 and deposit ₹1,000 to the IT department.
🔍 Note: TDS is calculated on the base amount (excluding GST).
Compliance Requirements
✅ For TDS:
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Deduct TDS at the time of payment or credit, whichever is earlier.
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Deposit it by the 7th of the next month.
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File TDS returns quarterly (Form 26Q).
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Issue TDS Certificate (Form 16A) to the vendor.
✅ For GST:
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Ensure the vendor uploads the invoice in GSTR-1.
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Claim Input Tax Credit in your GSTR-3B.
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Match invoices with vendor filings to avoid mismatch and penalties.
Best Practices for Admin & Purchase Teams
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Vendor PAN & GSTIN Check – Always collect and verify PAN (for TDS) and GSTIN (for GST).
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Invoice Scrutiny – Ensure tax components are separately mentioned.
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TDS Section Knowledge – Know which section applies (194C, 194J, etc.).
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GST Rate Awareness – Know applicable GST rates for common purchases.
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ERP Integration – Use tools like Tally, Zoho, SAP to automate calculations.
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Monthly Reconciliation – Match books with GST portal data regularly.
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Vendor Follow-Up – Remind vendors to file GSTR returns to avoid ITC blockage.
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Training – Keep the admin/purchase team updated on tax laws and changes.
Common Mistakes to Avoid
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Deducting TDS on goods purchase – Not required.
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Deducting TDS on total including GST – Should be on base amount.
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Missing TDS deposit deadlines – Leads to interest and penalties.
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Claiming GST credit from unregistered vendors – Not allowed.
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Not matching invoices on GST portal – Can lead to credit denial.
Government Guidelines & Updates
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TDS Threshold: ₹30,000 per transaction or ₹1,00,000 aggregate (Section 194C).
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GST Composition Vendors: Do not charge GST; hence no ITC.
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Reverse Charge Mechanism (RCM): Sometimes you may pay GST on behalf of the vendor (especially if they are unregistered).
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E-Invoicing: Mandatory for B2B transactions above ₹5 Cr turnover from April 2022 onwards.
Tips From Our Side :
TDS and GST in purchases are not just finance topics — they are part of day-to-day operations in every modern business. Admins, purchase managers, and facilities heads need to be aware of when to apply TDS, how to verify GST invoices, and what compliance steps to follow.
Correct handling of TDS and GST ensures:
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Financial accuracy
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Smooth audits
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Vendor satisfaction
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Legal compliance
So next time you approve a purchase or clear a vendor bill — check the TDS & GST components!