TDS and TCS Failures explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Deducting tax and collecting tax are obligations imposed on people who are not the taxpayer. The consequences of getting them wrong are correspondingly specific.
Section 122(1)(v) penalises a person who fails to deduct under s.51(1), deducts less than required, or fails to pay the amount deducted under s.51(2). Section 122(1)(vi) does the same for s.52 — failure to collect, short collection, or failure to pay the amount collected under s.52(3). The penalty in each case is ₹10,000 or the amount involved, whichever is higher. Section 51(6) charges interest where the deducted amount is not paid to the Government, and the late fee for GSTR-7 and GSTR-8 runs separately under s.47.
The four failures on each side
| TDS — s.51 | TCS — s.52 |
|---|---|
| Fails to deduct | Fails to collect |
| Deducts an amount less than required | Collects an amount less than required |
| Fails to pay the amount deducted | Fails to pay the amount collected |
| Fails to furnish the return — s.39(3), GSTR-7 | Fails to furnish the statement — s.52(4), GSTR-8 |
Each is a distinct failure, and the first three of each are separately named in s.122(1)(v) and (vi).
The penalty formula: ₹10,000, or the amount involved, whichever is higher — where the amount is the tax not deducted or short deducted or deducted but not paid, or the tax not collected or short collected or collected but not paid. So a failure to deduct ₹4 lakh carries a penalty of ₹4 lakh, not ₹10,000. Section 122(1) →
The failure that costs most: deducted but not paid
Of the four, deducting and not paying over is the worst, because it engages more than one provision.
Section 51(6) — where the deductor fails to pay the deducted amount to the Government, he shall pay interest in addition to the amount, in accordance with s.50(1).
Section 122(1)(v) — the penalty of ₹10,000 or the amount, whichever is higher.
And potentially s.76 — an amount collected as representing tax and not paid over is payable forthwith, irrespective of whether the supplies are taxable, with a penalty equal to the amount and interest from the date of collection. Section 76 →
And s.132(1)(d) — collecting an amount as tax and failing to pay it beyond three months is a criminal offence, arrestable above ₹200 lakh and cognizable and non-bailable above ₹500 lakh. Section 132 →
The three-month line is the one to watch. A deducted amount not paid over becomes a criminal exposure at three months, and the sum belongs to the deductee, not the deductor.
The certificate, and the deductee's credit
Section 51(3) requires a certificate to be furnished to the deductee, and s.51(5) entitles the deductee to claim credit in his electronic cash ledger of the amount deducted and reflected in the deductor's return.
So a failure to file the GSTR-7 has a second victim. The deductee cannot take credit of an amount already withheld from him, and will press for it.
The same is true on the TCS side. Section 52(7) allows the supplier to claim credit of the amount collected and reflected in the operator's s.52(4) statement.
Which is why the deductor's or operator's return filing is not merely its own compliance — it releases money to someone else. GSTR-7 and GSTR-8 →
Who has to deduct, and the threshold
Section 51(1) requires deduction by the notified persons — including a department or establishment of the Central or State Government, local authority, governmental agencies, and such persons or categories as notified — where the total value of supply under a contract exceeds ₹2,50,000.
The rate: one per cent each of CGST and SGST, or two per cent of IGST.
The proviso to s.51(1): no deduction where the location of the supplier and the place of supply is in a State or Union territory different from the State or Union territory of registration of the recipient.
The recurring errors:
- deducting on the value including tax rather than excluding it — the deduction is on the value of supply, not the invoice total;
- applying the ₹2,50,000 test to an invoice rather than the contract;
- failing to deduct where the proviso does not in fact apply;
- deducting where the proviso does apply, which creates a refund problem for the deductee. Government supplies →
The e-commerce operator's additional exposure
Section 122(1B), inserted by the Finance Act, 2023 w.e.f. 01.10.2023 and its opening words substituted retrospectively from that date by the Finance (No. 2) Act, 2024 to cover "any electronic commerce operator, who is liable to collect tax at source under section 52", penalises an operator who:
- allows a supply through it by an unregistered person, other than one exempted from registration by notification;
- allows an inter-State supply through it by a person not eligible to make one; or
- fails to furnish the correct details in the s.52(4) statement of any outward supply of goods effected through it by a person exempted from obtaining registration.
The penalty: ₹10,000, or an amount equivalent to the tax involved had such supply been made by a registered person other than a person paying tax under s.10, whichever is higher.
Note the comparator — the tax a regular registered person would have paid, expressly not a composition taxpayer. So the operator's exposure is measured on the full rate. Section 122(2) and (3) →
The controls
For a deductor:
- A contract register flagging every contract exceeding ₹2,50,000, with the deduction position recorded and the proviso tested.
- Deduction computed on the value of supply, excluding tax.
- A payment calendar ensuring the deducted amount is remitted by the due date — well inside the three months that turns it into a criminal exposure.
- GSTR-7 filed every month, so the deductee's credit is released.
- Certificates issued under s.51(3).
For an e-commerce operator:
- Registration status verification of every seller at onboarding and periodically, including whether an exemption notification applies.
- A block on inter-State supplies by sellers not eligible to make them.
- Reconciliation of the s.52(4) statement to the platform's own transaction data, monthly.
- Correction of the statement promptly where an error is found, since clause (iii) penalises incorrect details, not only their absence.
Key takeaways
- Sections 122(1)(v) and (vi) each penalise three distinct failures, at ₹10,000 or the amount, whichever is higher.
- Deducted but not paid engages s.51(6) interest, the s.122 penalty, potentially s.76, and s.132(1)(d) after three months.
- The deductee cannot take credit until the deductor files, so the return releases someone else's money.
- The ₹2,50,000 threshold applies to the contract, and the deduction is on the value of supply excluding tax.
- The proviso to s.51(1) disapplies deduction in the defined inter-State situation.
- Section 122(1B) reaches only an ECO liable to collect TCS, with the penalty measured on the regular rate.
Read next
- GSTR-7 TDS and GSTR-8 TCS Returns
- Section 122(1): The Twenty-One Offences and the Penalty
- Section 76: Tax Collected but Not Paid, and the One-Year Clock
- Section 132: Offences and the Threshold for Prosecution
Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act as amended to 31 March 2026 (ICAI Bare Law, 12th edition). The classes of persons liable to deduct under section 51 are as notified and should be checked against the current notification.